A Modern Contract
| 5.18 The most effective form of contract in modern conditions should include:- 1. A 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 "win-win" 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 comprehensible 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 client's 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. mile stones, 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. |
TABLE 6: PAYMENT TIMES UNDER MAJOR STANDARD FORMS
(Source: SECG, prepared for the Review)
5.19 The New Engineering Contract contains virtually all of these assumptions of best practice, and others, which are set out in the Core Clauses, the main and secondary options.
5.20 There are some alterations which I believe ought to be made to the NEC to bring it fully within those principles.
1. Its name should be changed, since it can equally be used for building projects. I suggest the "New Construction Contract".
2. Provision should made, as a Core Clause, for a secure trust fund to be arranged, into which the client deposits payments for each milestone, activity schedule or interim payment period before the commencement of the relevant period. This will provide much greater confidence for contractors and subcontractors.
3. Subcontractors have expressed concern about the potential length of payment times under the NEC procedures, These concerns are set out in Table 6 prepared by the SECG. They suggest that payments to subcontractors could be up to 3 months after work has been carried out by them. However, the objective under the NEC is to pay both contractor and subcontractor from the assessment date rather than from the certificate date. The authors of the NEC believe that this gives protection to both main contractors and subcontractors. It is also the case that the NEC is drafted to facilitate payment on a 4-4-5 week cycle and the normal payment interval is expected to be one month. The NEC also allows for a construction management procurement route (with no main contractor), and late payment automatically attracts a right of interest (Clause 51.2, NEC subcontract). I recommend however that the payment periods be reviewed in conjunction with clients, contractors and subcontractors. This may allow for agreement on an alternative timescale which is acceptable to all.
4. A statement should be written into Core Clause 1 that the employer and the contractor affirm that they both intend to establish a fair and reasonable agreement with each other to undertake the project in a spirit of mutual trust and co-operation, and to trade fairly with each other and with their subcontractors and suppliers. Core Clause 16.3 should be strengthened to make it clear that "win-win" solutions to problems will be devised in a spirit of partnership. Identical wording should be included in the appropriate Core Clauses in the subcontract document.
5. Core Clause 1 in both main and subcontract documents should contain an express provision that none of the Core Clauses will be amended by either party to the contract. It should be a mandatory condition of the Core Clauses that the main contractor will only use the NEC subcontract in employing any subcontractor when using a formal document23 and will not amend any of the Core Clauses. They should only include those main and secondary options which are contained in the main contract, unless both parties agree to changes in the options in the subcontract document. Subcontractors should accept similar restrictions on their contractual dealings with sub subcontractors. If this spirit of co-operation which the NEC wishes to foster is achieved, such provisions should in practice be unnecessary. But in the present adversarial atmosphere, and with the need to change deep rooted cultural attitudes, it will add to confidence if they are included.
6. A full matrix of consultants' and adjudicators' terms of appointment should be published, interlocked with the main contract. (These are currently in draft.) Standard tender documents and bonds would also be desirable. The adjudication procedures may need some amendment to bring them within the principles of Chapter 9 of this Report.
7. Provision should be made for a simpler and shorter minor works document.24
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23 This is designed to meet the case where subcontractors are retained for small jobs, for example, on a labour only basis.
24 For example, the Landscape Institute regards the NEC as too complex even for landscape services in connection with civil engineering projects (evidence, April 1994).