Contract Practice

Question 1

What is an early warning?

Answer 1

An early warning is a formal notification by the contractor or consultant to the client when an event is identified that could affect cost, time or quality.

Question 2

How does an early warning work?

Answer 2

1) Contractor identifies a risk or potential issue
2) Contractor sends early warning notice to the PM
3) PM records in EWR
3) Project team then discusses mitigation measures to reduce risk.

Question 3

Why are early warnings important?

Answer 3

1) Prevents problems escalating and encourages collaboration between contractor and project team

Question 4

What is a compensation event?

Answer 4

A compensation event is an event that entitles the contractor to additional time or cost.

Question 5

What is an example of when a compensation event may occur?

Answer 5

1) Change in client requirements
2) Design errors
3) Unexpected site conditions

Question 6

How does a compensation event work?

Answer 6

1) Contractor identifies an event that could be a CE
2) Contractor submits a quotation to the PM
3) Contractors submission may be commercially evaluated by QS and PM
4) The PM then reviews, assesses and certifies any entitlement

Question 7

What is another key mechanism of the NEC contract?

Answer 7

Programme

Question 8

Why are compensation events important?

Answer 8

1) Ensures contractor receives fair compensation when change or risks occur

Question 9

How is the programme mechanism conducted?

Answer 9

1) Contractor submits programme
2) Programme is reviewed/accepted by PM
3) Contractor regularly updates the programme to reflect progress, delays or change
4) The programme is used to assess compliance with the completion date

Question 10

Why is the programme important?

Answer 10

1) Provides a baseline for time management
2) Supports the planning of resources and plant

Question 11

How is the scope of works applied at different stages of a project?

Answer 11

1) It helps define the project brief and project feasibility
2) It can help refine drawings and specifications
3) It serves as the baseline for monitoring work, assessing completion and managing change

Question 12

How is contract data applied at different stages of a project?

Answer 12

1) At the award of the contract, it defines milestones and responsibilities
2) During construction it is used to monitor progress and payments, calculate compensation events and assess compliance with contract terms
3) During final accounting, it provides reference for retention release and contract completion

Question 13

What are examples of NEC Option Clauses? A-F

Answer 13

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

Question 14

What is the purpose of different option clauses?

Answer 14

The option selected on a project defines how the contract handles payments, risks and incentives.