David Wileman, Operations Director for Driver Trett UK, examines the updates to the Treated Acceptance and Dividing Date concepts in NEC4.
I am a big fan of the NEC3 Contract. As a planner I salute any attempt to raise the profile of the programme (and by association planners) within a Contract.
Recently, the NEC4 Contract arrived with a bang. The NEC4 Engineering and Construction Contract (ECC) is said to offer “…increased flexibility, improved clarity and greater ease of use, helping to deliver real value in the procurement of works…”
With a sense of excitement, I whipped out my credit card and purchased the full suite hoping that the programme was still be front and centre of the Contract.
I was not disappointed and certainly encouraged by what I consider to be significant ‘tweaks’ incorporated within the NEC4 Engineering and Construction Contract. I consider that two of the tweaks are definite improvements on the NEC3 relating to the concepts of “Treated Acceptance” of the programme and the programme 'dividing date'.
Treated Acceptance
I work with a significant number of contractors who, time and time again, struggle on NEC3 Contracts to get a programme accepted by the Project Manager, as a consequence of strategy or purely as a consequence of inactivity or fear. The NEC3 Contract provided a structure for the programme to be accepted but quite often such agreement was forestalled by Parties who worry that accepting a programme means that they have accepted that programme warts, liabilities, obligations and all, or by Parties who simply refuse to engage with the programme regime.
The day before I wrote this article I provided some training on the NEC3 (Option C) Contract to a project team who, during the seminar, complained that the Project Manager was using every tool in his armoury to avoid accepting programmes and was then using the lack of an Accepted Programme to undertake his own assessments of compensation events.
Some Project Managers (as above) avoid accepting programmes as a tactic, but others simply fail to understand what accepting a programme means. The worry that accepting a programme thereby accepts revised liabilities and obligations is, in my opinion, unfounded as the Project Manager is protected by, including but not limited to, Clause 14. This clause states that acceptance of any communication does not transfer liability away from the contractor to comply with his obligations under the contract.
Clause 31.3 now states “If the Project Manager does not notify acceptance or non-acceptance within the time allowed, the Contractor may notify the Project Manager of that failure. If the failure continues for a further one week after the Contractor’s notification, it is treated as acceptance by the Project Manager of the programme.”
The NEC4 concept of “Treated Acceptance” (Clause 31.3) has been incorporated into the Contract to provide the Contractor with options (note “may notify”) when a Project Manager fails to respond to a programme which has been issued for acceptance. The addition of the “Treated Acceptance” regime will assist the Parties when a Project Manager fails to respond (within the stipulated time) to a programme which has been issued for acceptance by helping to apply pressure within when dealing with a Project Manager who is reticent to engage with the Accepted Programme.
The importance of the Accepted Programme regime is reinforced by Clause 13.4 which slightly amends the text (from the NEC3) to provide that the Project Manager should now state reasons (in line with Clause 31.3) “…in sufficient detail for the Contractor to correct the matter…” thereby ensuring that the reasons are specific, quantifiable and hopefully capable of being remedied.
With respect to a Project Manager who engages but still, for strategic purposes, refuses to accept programmes, Contractors should ensure that they keep forcing the issue both by following the timescales stipulated in clause 31 of the NEC4 alongside reminding the Project Manager that, by reference to Clause 14, they are not signing a blank cheque by accepting the programme. Such a two-pronged persuasive attack may push previously reticent Project Manager's over the edge into accepting programmes. Strategic refusal to accept programmes should then be taken up the food chain to senior management via Clause W1 or W2. However, this should only be done when the Contractor is confident that its programme is fully compliant with Clauses 31.3 in that the programme is practicable, contains all the correct information, represents the Contractor's intentions and complies with the Scope plus that any and all reasons given under Clause 13.4 have been addressed.
Project Managers should also be aware that the standard form stipulates “one week” after the initial period for failure to accept the programme and as such holiday cover is an absolute must.
The Dividing Date
The concept of the dividing date (previously in NEC3 Clause 63.1 “the date which divides work already done from the work not yet done”) has also been tweaked for the NEC4. Clause 63.1 states that the changes to the Prices is assessed as the effect of the compensation event upon “the actual Defined Cost of the work done by the dividing date” and “the forecasted Defined Cost of the work not done by the dividing date…” This dividing date therefore is used to determine whether actual or forecasted “costs” are to be used for compensation events. The dividing date being described as the date of the instruction / certificate / notification communication or the date of the notification of the compensation event.
Clause 63.5 (Assessing Compensation Events) states “A delay to the Completion Date is assessed as the length of time, that due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme at the dividing date…” and “A delay to a Key Date is assessed as the length of time that due to the compensation event, the planned date when the Condition stated for a Key date will be met is later than the date shown on the Accepted Programme current at the dividing date…”
‘Dividing date’ is not a defined term, though it is specifically explained in Clause 63.1 relating to a change in Prices which occurs when delay is incurred. The Guidance Notes advise that the inclusion of the ‘dividing date’ set early in the assessment process reinforces the point that compensation events are not cost reimbursible but are assessed on forecasts with the Contractor taking some risk. The dividing date is also explained within the ‘NEC3 and NEC4 Compared’ guide.
The dividing date removes any doubt as to against which Accepted Programme a compensation event should be implemented and enforces the philosophy that compensation events should be added as soon as they are known about with associated Contractor's risk and Project Manager's assumptions where necessary.
This is an improvement on the NEC3 as it provides certainty as to the Accepted Programme against which the compensation event is impacted although it should be recognised that some compensation events have occurred before any instruction / notification / certificate has been raised and even before the notification of the compensation event has been written. Further, the finalisation of a compensation event can take some time through the stages of identification, notification, assessment and implementation with the Parties reticent to agree the effect until they are confident that the full extent of the event has been determined. On the basis a number of Accepted Programmes may have been created over the development of the compensation event.
Failure to introduce a compensation event speedily after the dividing date may force the Parties to go back some weeks / months to get back to appropriate Accepted Programme (as defined by the dividing date) which will then potentially have an impact on subsequent post dividing date Accepted Programmes.
The above situation needs to be effectively managed and communicated by the Parties to ensure that compensation events are impacted onto the appropriate Accepted Programme as close to the dividing date as possible. This is good practice as early impacting of compensation events provides protection from arguments of Contractor culpable delay and allows the Parties to determine possible mitigating / accelerative actions as early as possible. The emphasis on early action is explained in the guidance notes which also advises that the dividing date prevents the practice of a Project Manager making a retrospective and selective choice between a quotation and the final recorded costs of a compensation event.
Of course, the above relates to the assessment of delay during the project. A retrospective review undertaken after the Completion Date may provide somewhat different results. But that is a whole other article!