The time has come to get down into some gritty detail. There are so many things to write about I was having trouble deciding where to start. However my mind was made up when I spent an enjoyable and productive afternoon with a group at one of our client’s offices taking them through the changes from NEC2. The group included an estimator who had a job to price on NEC3 (yes, an Employer/Project Manager has taken the plunge and used the form straight away and without Option Z). The estimator, who is experienced at pricing under NEC2, was interested in the changes to the Schedules of Cost Components and the definition of the Fee (clause 11.2(8)) so he could get the percentages right, and that gave me the starting point for considering the detail in the 3rd edition of the ECC.

I will start with the full schedule. The first thing to note is that this full version only applies when Option C, D or E is used. By means of the definition of Defined Cost (which used to be Actual Cost in NEC2) at Clause 11.2(22) for Options A and B these priced contracts now use the Shorter Schedule for pricing compensation events, which is of course the only reason for using the Schedules under these options.

Section 1 of the Schedule, People, has been amended. What was the third classification of the type of people to be included under this section (not directly employed, paid on a time worked basis) has been moved to item 14 and the amounts included are simply the amounts paid by the Contractor to this class of people. The classification for people directly employed by the Contractor but whose normal place of working is outside the Working Areas has been changed by removing the caveat in NEC2 that such people must be working in the Working Areas for not less than one week. This, in my view, makes things fairer, especially on smaller contracts where visiting staff are more prevalent and means that the Contractor does not have to estimate this involvement, where the work is done in the Working Areas and include it in the Fee. The Contractor will of course still have to include the cost of such staff whilst they are carrying out their duties outside the Working Areas in his fee, but at least some of the guess work has been removed. The list of payments in respect of people at items 11, 12 and 13 has been changed slightly, primarily by the addition at 13 (n) and (o) of ‘a vehicle’ and ‘safety training’.

I think more could have been done to simplify the People section of the Schedule, for instance by providing a schedule of rates for different grades of staff, tradesmen and operatives to be provided by the Contractor at tender, rather than leaving the administratively complicated calculation which is theoretically needed for every individual to who the Schedule applies. To provide for such a schedule of rates would only have replicated what many experienced users are doing in practice and would have made the administration simpler. It would also have provided Project Managers with another tool to use in assessing tenders when considered alongside the various percentages quoted by Contractors.

It is within Schedule 2, Equipment, as described by David Carrick, that the most noticeable change has been made. The calculation previously required to calculate a depreciation and maintenance charge for every item of Equipment owned by the Contractor or a company within the same group has been removed. Instead such Equipment will be paid for at open market rates multiplied by the time required (see item 22). Item 23 provides rules for the payment of Equipment purchased for work included in the Contract Data, by means of the change in value if the Equipment over the time required plus a time related on-cost at the rate stated in the Contract Data Part Two by the Contractor. This time related charge is to provide for payment for consumables and servicing of such Equipment. At Item 24 ‘special Equipment’ listed in the Contract Data is paid at the rates stated therein. Such ‘special Equipment’ is presumably items for which an open market rate cannot be established and which do not have any resale value to determine such a change. It appears that Items 22 to 24 should be treated as a priority system for the costing of Equipment owned by the Contractor or the Contractor’s group.

Equipment now includes the Contractor’s site accommodation, but excludes the Equipment cost covered by the percentage for Working Area overheads. In NEC2 such accommodation was clearly included in item 44 and was covered by the percentage. This has been changed. The accommodation will be paid for as Equipment, but the supplies and services used within the accommodation will still be covered by the percentage. However, note that such supplies and services provided by the Contractor for the Project Manager’s and Supervisor’s offices are paid for at cost as a charge under Item 43(i) rather than as part of the percentage for Working Area overheads.

In Section 4, Charges, Item 41 has been amended by removing the last category under NEC2, i.e. ‘other services’ so that this item is now clearly limited to water, gas and electricity. ‘Other services’ was always a loose term which gave rise to the possibility of varying interpretation and this is probably the reason behind the change. In Item 42 the reference to ‘utilities’ has been removed, but otherwise this remains the same. Within Item 43 ‘cancellation charges arising from a compensation event’ has replaced ‘financing charges’ at (a) and ‘rent of premises in the Working Areas’ which was (f) in NEC2 has been deleted. As accommodation in the Working Areas is now paid for as Equipment it would appear to be fair that the cost of renting fixed premises should be treated in the same way and paid for in Section 2.

As referred to above the accommodation that was covered at (a) to (e) of Item 44 in NEC2 have been deleted, this accommodation now being treated as Equipment under Section 2. The only other change to Item 44 is in respect of hand tools where the NEC2 description of “hand tools and hand held powered tools” (at (q)) has been replaced with “hand tools not powered by compressed air” (at (j)). I haven’t been able to determine why this change has been made but it would appear that it could potentially encourage the use of compressed air tools rather than electrically powered tools as the former would be paid for under Section 2.

Sections 5, 6 and 7 are unchanged from NEC2.

Moving on to the Shorter Schedule of Cost Components, the major change is as noted above, i.e. that it is now used as the basis of Defined Cost for Options A and B. As with NEC2, the Shorter Schedule can be used to assess compensation events under Main Options C, D and E by agreement between the Project Manager and the Contractor or unilaterally by the Project Manager when making his own assessments pursuant to clause 64 (see clause 63.15).

Within Section 1, People, the caveat at the second built point in NEC2 that required visiting employees to be in the Working areas for not less than one week, has been deleted as in the Full version. In addition the amounts recovered for people as previously set out at Items 11, 12 and 13 have been completely revised. The amount recoverable through the Shorter Schedule is now “amounts paid by the Contractor including those for meeting the requirements of the law and for pension provision”. The Guidance Notes confirm my initial thoughts on this revision to Item 11 in that the intent is that it should cover all the specific items listed at Items 11, 12 and 13 of the full Schedule.

The main change to Section 2, Equipment, is the inclusion of accommodation which was previously excluded. The other changes are the deletion of the provisions regarding idle and standby time that were at Item 23 and the addition of a new Item 27 which provides that any Equipment that is neither in the published list nor listed in the Contract Data shall be paid for at competitively tendered or open market rates.

Probably the most notable change to the Shorter Schedule is the revisions to Section 4, Charges. The overall principle stays the same in so much that we have a ‘percentage for people overheads’ applied to the cost of people Item 11 to cover identified costs. However, rather than all charges being covered by this percentage, payments:

for cancellation charges arising from compensation events (item 42);

to public authorities and other properly constituted authorities of charges which they are authorised to make in respect of the works (item 43);

for consumables and equipment provided by the Contractor for the Project Manager’s and Supervisor’s office (item 44); and

for specialist services (item 45)

are all paid at cost.

The costs to be covered by the percentage for people overheads are identified at three bullet points under Item 41 and cover those matters listed at items 41, 43 and 44 of the full schedule except those matters paid at cost as listed above. The reference to “overhead payments for people including payroll burdens” that was at (a) of Section 4 in NEC2 has been deleted, presumably because Section 1 of the Shorter Schedule is intended to be the same as Section 1 of the full Schedule.

Section 5, Manufacture and Fabrication, has been amended by reducing the cost recovered to that paid by the Contractor rather than being the same as the full Schedule as it was in NEC2. Sections 6 and 7 remain unchanged.

Moving on to the Fee, this is now defined at Clause 11.2(8) as being “the sum of the amounts calculated by applying the subcontracted fee percentage to the Defined Cost of subcontracted work and the direct fee percentage to the Defined Cost of other work”. This is a change which is to be welcomed and will no doubt make pricing easier and the calculation of the Price of Work Done to Date under Options C, D and E and the assessment of compensation events under all Options more realistic. It has occurred to me though that different percentages will be required for priced contracts (Options A and B), for reimbursable contracts (Options C, D and E) and the management contract (Option F). This is because the definition of Defined Cost is different between Options A and B (see Clause 11.2(22)), Options C, D and E (see Clause 11.2(23)) and Option F (see Clause 11.2(24)). Contractors and Sub-Contractors pricing projects that will be carried out under the 3rd Edition of the ECC need to consider this difference carefully when putting their prices together. Some useful tips are given at page 128 of the Guidance Notes of cost components that should be covered by the Fee, but please note that the list provided is clearly stated not to be exhaustive.

In the next couple of days I will continue by considering the detailed changes to the compensation event mechanisms contained at Core Clause 6.

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