The phrase ‘NEC Project Audits’ can produce an aversive reaction because it is perceived as a fault-finding exercise focused on blame rather than improvement. Reframing this perception in a more positive light should increase the likelihood of its use on projects. Rather than ‘NEC Project Audits’, it can be called ‘Health Checks’. This phrasing makes it feel like a worthy process that benefits the project’s health. Ultimately, the language that encourages a more positive emotion should be used.
While the overarching focus of this webinar was the NEC Engineering and Construction Contract (ECC), the same principles apply more broadly. The approach discussed can be mirrored with the Subcontractor and Contractor relation under an Engineering and Construction Subcontract (ECS), and collectively with any of the contracts within the NEC Suite of Contracts.
Getting Programmes Right
The lack of an accepted programme makes it challenging to assess compensation events, and assessing the change becomes incredibly difficult and subjective. Conversely, the regular issue of a revised programme and subsequent acceptance is key to a well-administered NEC contract. When this has been addressed, both parties will have a clearer understanding of how the remaining works are planned, and there is a mechanism to agree on the effects of change (compensation events) against.
Glenn gave specific recommendations for reviewing the length of time since the programme was last accepted:
If there has been 1 non-acceptance – it’s a blip. 2 non-acceptances – it’s a problem. 3 non-acceptances – it’s a disaster. 4 non-acceptances – its essentially a lottery, because how can you assess change on a programme that is more than 3 months old?
If a programme is more than 3 months old, it becomes problematic for both parties to agree the effects of compensation events, and the team should do everything in their power to get the project back on track.
A method to address this is programme review meetings. Despite these not being contractually compulsory, they essentially involve presenting the programme to the other party and explaining what has changed, and what this means. As a result, everyone has a better understanding of the programme, and therefore it is more likely to be accepted.
Early Warnings as a Key Focus of NEC Project Audits
Looking back at the reason for the NEC suite of contracts being created in the first place, one of the main purposes was to convince the parties to manage and minimise the potential effect of future issues rather than whose liability the risk is. When parties use the Early Warning process correctly, it becomes a proactive management tool to avoid potential issues from becoming bigger problems than they need to be.
It is very helpful to check the tone of an early warning.
Is the content of the early warning as it is written likely to be received positively?
At Early Warning meetings, parties should attempt to resolve the issue at hand. Quite often, blame is assigned between project teams; it is essential to address the manner of the Early Warning to ensure it feels professional and constructive.
Questions should be asked, such as:
Will it cause the parties to work together more effectively?
Early Warning meetings should be used for solving the issue, not creating more.
Neil built on Lesley’s points associated with reviewing Early Warnings by asking the attendees:
Is the Supervisor involved in the ‘early warning’ meeting? As far as the contract is concerned, they don’t have to, but there’s no reason why they couldn’t be.
There is an obligation to give an early warning for something that could impair the performance of the works in use, but if this could be used more effectively to warn about potential quality issues, perhaps there would be fewer defects on projects. Early warnings should be perceived as a proactive step to a healthier way of working.
Compensation Events in NEC Project Audits
Clear scope, collaboration and proactive project management will help to limit change and compensation events on a project. However, change is almost inevitable due to the nature of construction projects, and compensation events will need to be notified. Therefore, judgements shouldn’t be made purely on the number or presence of compensation events, but also consider the response times in notifying and implementing them. If compensation events are taking 2-3 months to reach an agreement, then there is clearly an underlying issue that needs to be resolved.
The same principles of reducing the length of time a programme goes without acceptance can be applied to unagreed compensation events.
A similar approach to programme acceptances can be applied here for compensation event responses, i.e., holding joint compensation event meetings. Again, these meetings are not compulsory, but the status of each compensation event can be reviewed to agree on its status in terms of notified, quoted, assessed and implemented. Another point to raise at the meeting is to present the quotation in terms of likely cost/time implications, even if it hasn’t yet been completed. Showing it to the Project Manager ensures they aren’t in the dark on this subject and will speed up their understanding.
Another reason for this meeting is to remove the tendency to want to discuss compensation events in early warning meetings. It works far better to have that distinction between meetings.
The level of supporting detail going into compensation event quotations is frequently insufficient. That initial reason for rejection is often “I need more reason to reject this”, so agreeing on the degree of detail upfront avoids this unnecessary interaction. A clear demonstration of the level of risk is an important element to make clear.
Watch the Full Webinar!
This article focuses on just a selection of the themes discussed during the webinar, including programmes, early warnings, and compensation events. When combined, these subjects highlight the importance of routine NEC Project Audits as a proactive strategy to keep projects on a predictable course. The NEC contract management systems available, such as Contract Bee, will enable users to conduct these health checks within the contract administration software. Other important areas, such as payments and broader contract administration checks, were covered in the full session on our YouTube channel. You can watch the complete webinar using the link below.
