Compensation Events System under the NEC Contract - Essay Example

Number] Compensation Events System under the NEC contract NEC is the New Engineering Contract whichis created by the Institution of Civil Engineers (Gibson, p77). It conducts the drafting of documents in areas such as civil engineering and construction projects. The purposes can be obtaining tenders, awarding and administrative contracts. These documents are legally drafted containing of the duties being carried out by the contractor and the employer. In other words, NEC is a branch of contracts that assists the implementation of sound project management principles along with defining legal relationships. It is a suitable way of acquiring a wide range of services and works, across major framework projects to purchasing of supplies and goods. The implementation of the NEC contracts has resulted in great benefits in terms of time, money and quality both nationally and internationally. The NEC documents are essentially different in approach to many other procurement contracts. This approach is seen in the drafting of the contract. Where the traditional approach to a contract showed the adversarial relationship between the client and the contractor, the NEC approach to contracts promotes a collaborating approach that has a consistent record of submitting projects in the given time, and on budget (Bennett and Baird, p30). The NEC is a unit of standard contracts with three key characteristics that exist in each document. Firstly, it promotes good management and shows the relationship and the work between the two parties in the contract. Secondly, the NEC can be used for a variety of commercial situations as they support a variety of types of work regardless of the location. Lastly, NEC is a clear and simple contract which is drafted in easy language and simple words so that it is easy to understand for all parties. The contract in regard of the whole project comes with notes for guidance and flowcharts showing the details of the procedure of the project (Gibson, p77). Compensation events under the NEC contract: Compensation events are those events that lead the contractor to be compensated for any change in price and as well as the completion date, if that event is not the contractor’s fault. The consequence of the compensation event is that the contractor has to allow additional payment and additional time. In some rare cases, these compensation events may also result in reduced payments. The basis on which the contractor is paid for the compensation event is the actual and forecast cost of the project. All the compensation events are mentioned in the contract under the core clauses where the contractor and employer have given their terms. These compensation events can be added or deleted by the employer in the contract. In a normal contract, all the compensation events are the employer’s risks, and all other risks are borne by the contractor. There can be different compensation events mentioned in a contract, some of which are the main ones that are almost included in all contracts. Changing the main information about work can be a compensation event. Only the manager of the project has the authority to change the information, any changes in the information about work may cause the addition or deletion of the mentioned clauses which are affected by the manager’s instruction to alter it. Possession of the site or the part of site is also a compensation event. The employer does not give possession of the site before the actual possession date and the date which is required by the Accepted Programme. The provision by the employer; which means that if the employer fails to provide anything which he is supposed to provide according to the contract within the due date, that is also a compensation event (Bennett and Baird, p30). The employer can not get away without providing whatever was promised under the contract. If the project manager gives any instructions to stop the project, or gives instructions to not start any work at all, it will be a compensation event. The carrying out of the work and the proper work on time is very important, thus if there is any part of the information about work which is not carried out within the given time, date and procedure, it will be a compensation event. Employer or any other person related to the contract can fall under this category (Rowlinson, p122). Sometimes there are communication errors, so if there are errors in communication by the project manager they will be a compensation event. Under the contract, if any issue is not communicated within the given time, it will be considered in this category. Another category is when the project manager instructs to deal with an object that holds some historic importance, or other interest. Any change of decision by the project manager which is communicated to the contractor is also a compensation event. If the project manager withholds an acceptance for a reason which is not stated in the contract, it will be a compensation event. If the project manager gives the contractor an instruction to search for a defect is also a compensation event unless the search is needed. The project manager should have given prior notice to the contractor informing about any search or inspection that was yet to be done. Any delay caused by the project manager in any unplanned inspection is a compensation event. There are some physical conditions that are compensation events. These physical conditions encounters those that are within the site, are not weather conditions and that a contractor who is experienced enough could judge the small chance of it occurring that he should have taken care of it. In these conditions the physical condition will be a compensation event. The contractor is assumed to have taken into account all the conditions which are least favourable before the project has been started out, after this any inconsistencies in the site information will be the responsibility of the employer (Gibson, p77). The adverse weather conditions can also be considered as a compensation event. Unlike the normal standards of a contract, the NEC contract approaches differently. There has to be weather data by a recognized authority which measures all the relevant weather conditions for the site before starting the projects work. These may include daily rainfall, cold weather and snow. The weather conditions which are likely to occur within a ten-year period are a contractor’s risk, in regard of both cost and time. Additional measurements related to this can be added in the contract relevant to the particular site. Any such events occurring which are the employer’s risk events, this means that the employer has stated the risks in the contract due to the fault of the employer. These are usual risks which are borne by the employer and are compensation events. Moreover, if employer takes over occur before the completion of the project it will also be a compensation event. The project manager might have made some assumptions for the compensation events in the contract, and if he changes them later it will become a further compensation event. The employer’s breach of contract is also considered as a compensation event unless notified (Forward, p43). There are additional compensation events caused by the re-rating due to change in quantities, the changes in quantities and the errors in the bills of quantities. The project manager is expected to keep keen checks over the issues related to quantity and quality. The project manager is required to correct these mistakes before they are operated under the contractual terms (Bennett and Baird, p30). Benefits: The compensation events system is assumed to be a very complex issue regarding the contract, whereas this is not true. It is a simple way in which the contract is carried out safely. Compensation events system may have many benefits for the contractor. It would prevent any events occurring that are unlikely to be expected by an experienced contractor. The NEC contracts have the major aim to avoid any unnecessary compensation events (Rowlinson, p122). NEC contracts have everything mentioned simply and in an easy to understand language, which enables the contractor to understand the clauses clearly and be aware of all the risks that are likely to occur. Contractual events system takes over all the unreasonable instructions that are given by the project manager without the fault of the contractor. This is why the NEC contracts are much more modified and common nowadays, as they reduce the risk levels and allow the contract to be carried out in the way accepted to all parties (Bennett and Baird, p30). The compensation event system under NEC contracts enables the contractor to endorse the contract under time and budget. The best part is the great management that NEC contracts promote. A detailed programme is given and the updates are continuously notified which is an essential tool for the parties to be able to keep in touch with the progress of the programme, and to manage the effect of any problems, delays, miscommunication etc. Impact: The project manager tends to implement every compensation event by notifying the contractor. The contractor accepts this implementation on his own assessment. The most important impact that it has on the parties included in the contract is that these parties are instructed before any changes, and thy do not have to be risky about any unreasonable changes. All the changes made by the project manager have to be clearly mentioned otherwise it will be a compensative event. Thus, the compensation events system under all NEC contracts in the main clauses, cost schedules and every type of planning should be clearly conveyed to the project manager in order to respond efficiently. The contractor would also come under the risk factor for matters relating to time and cost which have a significant chance of occurring under the compensation event system (Forward, p43). The NEC contract and the compensation event system can have an impact on the contractor as he has to be compensated if it is not his fault, and the other parties involved in the contract may also have an impact. The delay in completion time and unreasonable changes in material or other work information can have an impact on the workers working under the contract as well. The compensation events are at the contractor’s risk under the contract. The contractor is tending to react swiftly to the compensation event. Assessment: The assessment of effects of compensation events system on money is on the actual defined cost of work already done, the forecast defined cost for the work which is not yet done, and on the resulting fee. About the completion date and time, the delay is assessed by finding out the difference between the two; planned completion date and the completion date of the Accepted Programme. The similar process is carried out for the impacts of dates in the Accepted Programme. (Broome, p43) However, there may be some restrictions when relating to compensative events system. These may be that the parties gain the right to alter the prices, time and date only if there is a rise of a compensation event. This means that the contractor, if once entered in the contract, will not have the right to make any amendments or speak up on any issue in the contract. Moreover, if a project manager had already given the notification to the contractor regarding a failure to give an early warning of a compensation event then that will be considered as if the contractor did give an early warning (Bennett and Baird, p30). Disadvantages: Although the idea is simple, it has a more complex way of delivering it. As there may be many compensation events included in one contract, it creates a rather more meticulous contract with its sensitivity in every aspect. The nature of the compensative events system should not be hidden by the contractors (Forward, p43). However, the fact is that compensative events have very encouraging nature but this means that any size NEC contracts can have as many compensative events as required. The compensative events system relies on the clauses which deals with these events and is in fact a more confusing and problematic process. In other words, no matter how simple the language is used, the parties may have some problems in relating the clauses and dealing with the unlimited number of compensative events. NEC tries to keep it as simple as possible but the contract is attached with guidance notes and flowcharts that are related to every aspect of the contract. In the same way, the flowchart of compensative events clause 60 only consists of 18 pages, and then its explanation. This means that the contract may raise problems such as misunderstanding, complexity and implementation of its processes. The nature of the NEC contracts itself can sometimes go against it. If the clauses of compensative events are mapped in the NEC contract, it will be found that it is a mixture of many thoughts. A contractor should thus keep in mind that the NEC contract has the ability to deal in hundreds of compensation events, which is an advantage but the same can be turned as the drawback as not every contractor can manage the complex procedure of the compensation event system (Broome, p43). Personal opinion: NEC form of contracts has been immensely important for the engineering and construction purposes as they have been specially designed for the purpose. The compensative events system under the NEC contract is designed to create better relations between the contractor and the employer. It plays an important role and it enables the contract to be carried out in the way it is expected to be. It also promotes collaborative learning which is what the key to success is. It also promotes good and sensible management that can be applied even when the events occur. In my opinion, there are a number of ways through which the complexity of the compensation events system can be dealt. One of the ways in which this can happen is by grouping the events, and bringing small claims together separate from the big ones. The grouping can also be done according to the time frame and the time can be divided to avoid the burden. Another way is set schedules of rates, excluding low value and minimal time impact events. A managed administrative system can enable the time management and lower the risks of extra time and costs. Conclusion: Although, there may be many difficulties and complexities that are to be dealt with when talking about the compensation events system under the NEC contracts, but at the same time this standard of contracts has enabled many projects to be successfully carried out. The managing of events is most successful when the parties contribute their ways and methods to avoid any overcoming problems, before the contractual work has started. Discussing and mentioning all such aspects before the contract always secures the parties included in a contract. This is where the principle of early warnings, provisions, forecasts and compensation events has introduced. This means that a notified instruction is the only one which will be entertained; otherwise the contractor will be compensated. The best part is that both the parties will mutually agree to all the clauses before the contract are being signed, resulting in an undisputable contract to be carried out throughout the project. A contract without any disputes is what the main factor is to produce a flawless project approved by all, and carried out strictly under as planned under the NEC contract. Work Cited Roger Gibson. Construction Delays: Extensions of Time and Prolongation Claims. NY: Taylor & Francis, 2008 Frances Forward. The NEC Compared and Contrasted. NJ: Thomas Telford, 2002 Michael Rowlinson. Practical Guide to the Nec3 Professional Services Contract. NY: John Wiley & Sons, 18-May-2012 Jon Broome. NEC Engineering and Construction Contract: Users Guide. London: Thomas Telford, 1999 John Bennett, Andrew Baird. NEC and Partnering: The Guide to Building Winning Teams. London: Thomas Telford, 2001 Read More