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Viewpoint: client weaknesses are not the contract’s fault

In the traditional way that a bad craftsman blames his tools there seems to be a developing trend for bad clients to blame their forms of contract for poor performance.

A form of contract cannot guarantee success or failure. There is a range of factors which will determine project success. The right choice of contract can, however, help to set the right delivery framework and establish the culture which will make success more likely.

The NEC is undoubtedly the form of contract most likely to deliver successful outcomes. It is disappointing to see the recent implied criticism of the NEC. This appears to be an attempt to divert attention from deficiencies in project delivery strategies and client inadequacies. Some appear to want a return to the ICE Conditions of Contract even though the ICE now favours the NEC – what a disaster that would be!

“Regrettably there are still some dinosaurs who would take the industry back to the dark ages – either deliberately or through sheer ignorance”

In combination with lowest price tendering, the ICE conditions were guilty in the 1990s of virtually destroying the credibility of the construction industry. Most ICE contracts resulted in substantial cost and time overruns, adversarial relationships, claims, disputes and final accounts that took up to 10 years to settle.

Regrettably there are still some dinosaurs who would take the industry back to those dark ages – either deliberately or through sheer ignorance.

The NEC supports collaborative working relationships and facilitates good contract management practices. To make best use of it, a client needs to understand the key elements of the contract and the skills and resources required. This of course applies to any form of contract.

With the ICE conditions, clients knew that they would need very large site supervision teams to achieve the right quality and deal with the vast volume of contract paperwork, and an army of quantity surveyors and legal and claims advisors for several years after the completion of the works.

“There are risks in using the NEC form of contract without a good understanding of how it is intended to operate. But the same can also be said about any other form of contract”

On NEC contracts the client’s resource requirements are of a different and more constructive nature. Resources requirements include risk identification and management; cost managers to operate open book accounting and deal with compensation events; quality system managers and programmers.

There are risks in using the NEC form of contract without a good understanding of how it is intended to operate. But the same can also be said about any other form of contract.

Typical failings in the application of the NEC are inappropriate changes to the risk allocation; inappropriate pain/gain incentive mechanisms in the target price options; failure to establish a culture that supports the early warning provisions; failure to deal with compensation events in a timely manner and a failure to maintain the contract programme.

“The ICE conditions were guilty in the 1990s of virtually destroying the credibility of the construction industry”

Outside of the contract there is a range of external factors which will determine whether or not successful project outcomes are achieved. These are the basic elements of good project management and include matters such as clear objectives, reliable cost estimating, effective risk management, strong project controls, supplier selection procedures based on best value and robust contract management.

There is no need to review NEC as has been recently suggested. More relevant would be reviews of why some clients think that lowest price tendering will deliver lowest outturn costs and also why all clients are not ensuring that they understand the NEC and are adopting it to deliver their requirements.

  • Steve Rowsell is director of Rowsell Wright and former procurement director at the Highways Agency

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