Formation of Construction Contracts

Topics: Project management, Clause, Option contract Pages: 5 (1268 words) Published: November 30, 2012
Table of Contents
Table of Contents 1. Outline of the NEC Contract a) Summary of the ethos & key aims of the Contract i. Stimulus to good management ii. Variations iii. Clear and simple language b) Strengths c) Weaknesses 2. Main Option Clauses a) List of main Option Clauses b) Summary and Comparison of Option Clauses c) Recommendation 3. Secondary Option Clauses a) 15 ‘X’ Secondary Options b) Two ‘Y’ Clauses c) Discussion of ‘Z’ Clauses d) Recommendation 4. Conclusion 5. References

1. Outline of the NEC Contract
‘The NEC Engineering and Construction Contract (ECC) (previously the New Engineering Contract) has been developed to meet the current and future needs for a form of contract to be used in the engineering, building and construction industries. It is an improvement on existing standard contracts in a number of ways.’ (NEC, 2005).

a) Summary of the ethos & key aims of the contract i. Stimulus to good management The use of the NEC ECC should stimulate good management between the employers, designers, contractors and the project managers, and also make them work collaboratively to enable them to achieve their own objectives more consistently. It should also allocate the risks associated with the project between all parties clearly and simply to reduce the possibility of those risks occurring. The ECC focuses on ‘real time’ management of the project rather than looking back at what the parties should have done. This means the programme of works should always be up to date regardless of any changes.



A variation is a change to the contract/programme of works after the contract has been agreed. An example of a variation could be a modification to the original design of works. In this case, the designers of the works would have to issue an early warning notification to all other parties involved to ensure they all know of any extra costs or delays in works that could happen as a result of the change. After this, ‘the parties are then required to meet, to seek mutually beneficial solutions to overcome these problems, and to operate a formal Risk Register of notified events.’ (NEC, 2005). This change also results in a compensation event and a sum of money is usually paid to the effected parties.


Clear and simple language

The NEC ECC is written in ordinary language which is clear and simple and only uses words which are in common use. This makes it easy for everyone to understand, especially those whose first language is not English or those who are not used to using formal contracts. This also makes it easier to translate into other languages. The NEC ECC also has fewer clauses than in many standard forms, uses short sentences and the use of subjective words is kept to a minimum. Also, there is no cross-referencing between clauses.

b) Strengths
   It can be used in a wide variety of commercial situations, for any type of work and in any location. Clear and simple document which is easy to understand and follow. Nothing is getting tested in the courts so no case law is being built.

c) Weaknesses

Aled Rhys Hughes 200714325

2. Main Option Clauses a) List of main Option Clauses
      ‘A) Priced contract with activity schedule; B )Priced contract with bill of quantities; C) Target contract with activity schedule; D) Target contract with bill of quantities; E) Cost reimbursable contract; F) Management contract.’

(NEC, NEC3 Engineering and Construction Contract, 2005)

b) Summary and Comparison of Option Clauses
 Option A: ‘Provides a priced contract where the total of the price tendered by the contractor against each activity represents the amount he will be paid for that work.’ (Rowlinson, 2011). Option B: ‘Provides a priced a priced contract but this time with a bill of quantities. Under this option, the contractor is paid the actual quantity of work carried out at the rates in the bill of quantities.’ (Rowlinson, 2011). Option C: ‘The contractor tenders...
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