Richard Patterson – Mott MacDonald Introduction

Richard Patterson – Mott MacDonald
Introduction in an hour!
NEC – Term Service
Contract, TSC4

19/10/2022 c. Mott MacDonald | NEC TSC Introduction 2
Richard Patterson
BA MBA CEng FICE
Mott MacDonald NEC
Advisory Services
33Years with
Mott MacDonald
26Years with
The NEC
Part of NEC team
for NEC3 to NEC4
and 4 person team
for X29, Climate
change

19/10/2022 Mott MacDonald | ECC Introduction 3
NEC3 NEC4
Key changes in purple

ECC
Engineering and Construction Contract
TSC
Term Service Contract
ECSC
Engineering and Construction
Short Contract
TSSC
Term Service Short Contract
PSC
Prof’l
Service
Contract
SC & SSC
Supply Contract & Supply Short Contract
design construction operation
business
case
ECS
Subcontract
ECSS
Short Subcontract
Framework Contract
Adjudicator’s Contract
Supply
Low
High
Project
Complexity
NEC3 family
PSSC
Prof’l
Service
Short
Contract
19/10/2022 4

Why use the Term Service Contract (TSC)
• Providing a ‘service’ over the ‘service period’
• Eg including operating and/or maintaining
condition of existing asset
• A ‘service’, not a ‘project’
• Wide range of uses, not just construction
• Can include renewals and replacements
• May include some improvements
• Task Orders allows for ‘mini projects’ to be
instructed over and above the routine ‘service’

6
19/10/2022 c. Mott MacDonald | NEC TSC Introduction
TSC vs ECC vs PSC
6
TSC
Term Service Contract
ECC
Engineering and
Construction Contract
PSC
Professional Service
Contract
Provide a service – mainly
physical work
Provide works Provides services –non physical
work
service period (extendable
with X23) - and Task
Completion Date
Completion Date Completion Date
Plan – and Task Order
programme
programme programme
Affected Property Site and Working Areas No location defined
No such CEs • unforeseen physical
conditions
• weather compensation
events
No such CEs

• Building up the conditions
• Preparing the other tender documents
• Introduction
• Scope
• Risk allocation
• Defined Cost
• Contract Data
Agenda 1: Before award

Z
W1 W2
Z
main (payment) option
additional conditions
secondary options
dispute resolution option
1 - 9
core clauses
jurisdiction-specific options
TSC – building your conditions
W2
Y(UK)2 Y(UK)3
A C E
C
Y(UK)1
8
X1
X2
X3
X4
X8
X10
X11
X12
X13
X17
X18
X19
X20
X21
X23
X24
X2
X11
X23
X11

• Option A – Priced contract with price list
• Option C - Target contract with price list
• Option E – Cost reimbursable contract
• A, C and E used consistently in:
• Term Service Contract (TSC)
• Engineering and Construction Contract (ECC)
• Professional Service Contract (PSC)
Main (payment) options

• Lump sum contract: the ‘lump
sum’ is ‘the Prices’
• service well defined at tender
• The items in the Price List set
up by Client – or bidder
• lump sum items
• items with quantities and
rates - remeasurable
• The items to relate to
‘operations’ on the
Contractor’s plan (31.4)
(option A only)
• Items priced by the Bidder
• Payment on completion of
defined lump sum items and
quantities (where stated)
Option A – Priced contract with price list

• Service adequately defined to
establish target
• ‘target’ is ‘the Prices’
• The items in the Price List set
up by Client – or bidder
• lump sum items
• items with quantities and rates
- remeasurable
• Target moves with
compensation events
• Contractor tenders fee
percentage
• Contractor is paid Defined
Cost + Fee
Option C – Target contract with price list

The target contract
- the ‘Contractor’s share’
the Prices – the moving target!
time
amount
tendered
total of
the
Prices
compensation
events
share
percentage
0
%
35
%
50
%
100 %
‘pain’
‘gain’
Client
Contractor
100 %
80 %
120 %
share
ranges
dates stated in
Contract Data
Price for Work Done to Date
(PWDD) = Defined Cost +
Fee Contractor’s share
19/10/2022
12

Option E – Cost reimbursable
• The ‘budget’ is the ‘Prices’
• Contractor recovers forecast Defined Cost + Fee
• No ‘pain’ or ‘gain’ - total of Prices is just a budget
• Contractor tenders fee percentage
• Contractor has no financial risk (except adequacy
of fee percentage)
• Used
• scope undefined
• emergency services
• Client does not want to pass pricing risk to Contractor

E
Cost reimbur-
sable
C
Target with
price list
Contractor’s incentive ... and risk
Client’s
risk
...
and
flexibility
A
Priced with
price list
Risk allocation on target
contact depends on ‘share
profile’
14
Main options – quantity and efficiency risk
Risk allocation depends on
level of use of quantities
rather than lump sums

Dispute resolution Options
• Option W1 – used unless UK’s Housing (Grants,
Construction and Regeneration Act (HGCRA) 1996
applies
• Option W2 – used when HGCRA 1996 applies
• Both provide for adjudication, which can be
challenged at the ‘tribunal’, which is fixed in Contract
Data as either:
• arbitration or
• the courts

Price
adjustment
for inflation
X1
Changes in
the law
X2
Parent company
guarantee (EEC4
Ultimate Holding
Co Guarantee)
X4
(multi-party)
partnering (EEC4
Multiparty
collaboration)
X12
Performance
bond
X13
Secondary Options
X3
Multiple currencies
(only with Option A)
Undertakings
to the Client
and Others
X8
Information
modelling
X10
Termination by the
Client
X11 New to ECC4

Key
Performance
Indicators
X20
Project bank
account
Y (UK) 1
Low service
damages
X17
The Housing Grants,
Construction and
Regeneration Act 1996
Y (UK) 2
Limitation of
liability
X18
The Contracts
(Rights of Third
Parties) Act
1999
Y (UK) 3
Secondary options – yet more!
Z
additional
conditions of
contract
New to
ECC4
Whole Life Cost
X21
Climate change
(2022)
X29

Jurisdiction - specific secondary options
• Y(UK)1 – Project Bank Account
• Y(UK)2 – The Housing Grants,
Construction and Regeneration Act 1996
• Y(UK)3 – The Contracts (Rights of Third
Parties) Act 1999

• Should need less due to modular nature of TSC
• Need to be drafted with care to ‘fit’ with clear
language, structure and processes of TSC
• Usually an ‘obvious’ place for any required change to
be made
additional conditions of contract – option Z
• However, often drafted without understanding of the
TSC
• Contractors and consultants complain of ‘pages of Z
clauses’ - intent and clarity of NEC is sometimes lost
• Major waste!

• Introduction
• Scope
• Risk allocation
• Defined Cost
• Contract Data
Agenda 1 : Before Award

conditions
of contract
Contract Data
From Client
Core
Option Z
part one
price list
Scope
incorporates by ref.
optional
Accepted
Plan
letter of
acceptance
or
form of
agreement
TSC Contract documents
Scope
provided by
the
Contractor
for its plan
requires info.to be stated in
part two
From bidder
Instructions
to Bidders
(Short (A))
Schedule of Cost
Components
(C and E)
Options

Site Information
• Site Information is in the ECC
• There is none in the TSC (or the PSC)
• And no compensation event for physical
conditions
• Any information about your ‘Affected
Property’ that affects the service will need
to be in the Scope

• Introduction
• Scope
• Risk allocation
• Defined Cost
• Contract Data

• 20.1 ‘The Contractor Provides the
Service in accordance with the
Scope’
• 55.1 (A & C) ‘Information in the
Price List is not Scope.
• 60.1 ‘The following are
compensation events.
• (1) The Service Manager
gives an instruction changing
the Scope, a Task or the
Affected Property
• 63.11 ambiguity? Contractor wins!
Scope
What does it say on the tin?
If it’s not ‘on the tin’ (in the
Scope) then the Contractor
does not have to do it.
Simple !

Scope
• This is where the effort is required!
• No standard structure imposed by TSC
• But many references from the conditions listed in the
Guidance Notes ‘Preparing a Term Service Contract’ eg:
• communication system (13.2)
• ‘The Contractor shares the Affected Property with
Others as stated in the Scope.(23.1)
• provide services and other things (23.2)
• tests and inspections (41.1)
• Guidance notes have suggested structure to ensure
Scope covers all these issues

Low service damages
• Often need commercial incentives to provide the service
• If so, use option X17, Low service damages
• Option X17 deceptively simple:
• X17.1 If a part of the service does not meet the
service level stated in the service level table, the
Contractor pays the amount of low service damages
stated in the service level table.
• Contract Data: The service level table is . . . . .
• Might now use X29 instead with targets in the
‘Performance Table’

• Obligations
• Cl 21.1: ‘The Contractor
submits design of
‘Equipment’ if instructed to do
so
• responsibility unaffected by
acceptance of Service
Manger (14.1)
• No provision for design of
‘Plant and Materials’
• Liability
• No equivalent of ECC Option
X15 so any design will have
‘fit for purpose’ liability
• can be limited in value with
Option X18 (limitation of
liability) (X18.4)
Contractor design under TSC

NEC Contracts – The Truth will Out
30
The TSC will expose
poor Scope

• Introduction
• Scope
• Risk allocation
• Defined Cost
• Contract Data

• The main option allocates the ‘efficiency risk’
• A – with Contractor
• E – with Client
• C - shared
• Use of rates and quantities in the Price List rather than
lump sums leaves the quantity risk with the Client
• Also in secondary Options
• X1 (inflation), X2 (change in law) protect Contractor
• Z may modify risk profile
• …but also depends on how the Scope is written and..
Risk allocation - the first choices

Compensation event - principle
• The compensation events are
• events which, if they occur, and do
not arise from the Contractor’s fault,
entitle the Contractor to be
compensated for any effect the
event has on the Prices
• Key to risk allocation and
management under TSC

• 18 are stated in subclause 60.1
• 60.1(18) is ‘Additional compensation events
stated in Contract Data part one.
• X2, X12.3(6) & (7), Y2.5
• possibly option Z, if used to modify risk profile
• …but also depends on how the Scope is written
Compensation events – where?

• (1) The Service Manager gives
an instruction changing the
Scope, a Task or the Affected
Property
• (2) The Client does not provide
access to the Affected Property
in accordance with …. Accepted
Plan… or date on Task Order
programme
something it is to
provide….Accepted Plan…
Task Order programme
• (6) Default by Client or
Others
• (12) An event which is an
Client liability stated in
this contract
• (15) other breach of
contract by the Client
• Note: Nothing for physical
conditions or weather
Compensation events – what?

forecast
outturn
cost
base
risk
time
feasibility, specification of service , service provision
award
of
contract
client’s risk
Contractor’s risk
‘total of the Prices’
Need to ensure that compensation events in
contract reflect those risks that client wishes
to retain
Risk allocation
‘shared’
‘project risk’ if
option C or E

Early Warning Register
• In Contract Data - from both Client (Part
1) and Contractor (Part 2):
• The following matters will be included
in the Early Warning Register:
…………………………….

• The Early Warning Register is a register of
matters which are
• listed in the Contract Data for inclusion
and
• notified by the Service Manager or the
Contractor as early warning matters.
So the Early Warning Register is a post-
contract risk management tool and NOT
a place for risk allocation
Early Warning Register (Cl 11.2
(14))

NEC
NEC is a tool to manage
risk and avoid disputes
Management, Procurement, and Law 2009, No 4
Update to NEC4 on NEC website – here.

• Introduction
• Scope
• Risk allocation
• Defined Cost
• Contract Data

A
C
E
Assess
CEs? (63.2)
Payment?
Defined Cost – what is it for? And how is it built up?
41
Cost
based
options
Priced-
option
What is Defined Cost for? How Defined Cost built up?
SCC? SSCC? Disallowed
Cost?
CEs that do not ‘only affect the quantities
of work shown in the Price List’ (63.1)

Schedules of Cost Components – categories
Subtitle
1
People
2
Equipment
3
Plant
and
Materials
6
Manufacture
and
fabrication
7
Shared
services
outside
the
Service
Areas
5
Charges
8
Insurance
19/10/2022 Mott MacDonald | ECC Introduction
4
Subcontactors
Rates Rates
Rates

• Introduction
• Scope
• Risk allocation
• Defined Cost
• Contract Data
Agenda 1 : Before award

• points to the documents in your
the contract
• many references to it
throughout the conditions
• Part one – Data provided by
the Client
• Part two – Data provided by
the Contractor
• Acts as checklist in preparing
your contract
Contract Data

• fee percentage
• service areas
• key persons
• The Scope provided by the Contractor for its plan (if wanted by Client)
• The plan (if wanted by Client at tender)
• The price list
• The tendered total of the Prices (If A or C)
• Data for the Schedule of Cost Components (If options C or E)
• Data for the Short Schedule of Cost Components (If option A)
Contract Data part two from bidder includes:

• 1 General
• 2 Contractor’s main responsibilities
• 3 Time
• 4 Quality management
• 5 Payment
• 6 Compensation events
• 7 Use of equipment, Plant and Materials
• 8 Liabilities and insurance
• 9 Termination
• W Dispute resolution
Agenda 2 : Managing the Contract

Service
Manager
Client Contractor
advisors
Professional
Service Contract
(PSC) or
Professional
Service Short
Contract (PSSC)
Adjudicator
Dispute Resolution
Service Contract
Sub-
contractor
NEC TSS)
TSC
Sub-
contractor
NEC Short TSC
(minor changes)
49
Sub-
contractor
NEC ECSC (esp for Tasks)
For required ‘minor changes’ see Guide Notes
People Involved

Management roles in the TSC
• Service Manager / Contractor - eg key
processes for
• 1 changes to the Scope
• 1 early warning and updating the Risk Register
• 1 Task Orders
• 2 plan acceptance
• 2 subcontractor acceptance
• 4 tests and inspections – likely to be routine to
check on the service
• 5 payment assessment
• 6 change management - compensation events
• cost and time effect
• No separate Supervisor (as ECC) – Service Manager
might have a delegate to deal with testing and Defects

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

19/10/2022 BIM needs a collaborative contract 52
RT_C
Read the _ contract
10.1 The Parties and the Service Manager shall act as stated in this contract.
10.2 The Parties, the Service Manager act in a spirit of mutual trust and co-
operation.
DWISIT_C
_TalTEO
Do what it says in the _
contract
_ talk (and listen) to
each other

Communications (13)
• in a form that can be read, copied &
recorded (13.1)
• replies within period for reply or period as
in contract (13.3)
• Notifications communicated separately
(13.7)
• NEED A SYSTEM!
• forms – basic versions on www.neccontract.com
• forms – developed versions on MM NEC intranet
site
• Developed forms in NEC ‘Manuals’
• bespoke IT systems available – CCM, BIW, 4P etc
- we know them!

1
3
2
Acceptance does not
change the Contractor’s
responsibility to Provide the
Service or his liability for its
plan or its design (14.1)
Service Manager may
delegate any of their
actions (14.2)
Service Manager may
instruct change to the
Scope, a Task or the
Affected Property 14.3)
The Service Manager (SM) (14)
4
Service Manager may
issue Tasks Orders
(19)

• key process in all NEC contracts
• Contractor and SM required to notify each other
if aware of a matter which could
• increase the total of the Prices
• interfere with timing of the service
• impair the effectiveness of the service.
• SM or Contractor may give an early warning by
notifying the other of any other matter which
could increase the Contractor’s total cost
• SM enters early warning matters in the Early
Warning Register
Early warning (15)

Early warning (15)
• Routine Early Warning Meetings and
• Either Service Manager or Contractor may
instruct the other to attend early warning
meeting
• those attending co-operate in
• making and considering proposals to avoid or
reduce the effect of the matter
• seeking solutions
• deciding actions
• updating Early Warning Register
• SM revises the Early Warning Register to
record the decisions and re-issues
• Encourages collaboration, innovation and
ability to adjust to circumstances during the
contract

19/10/2022 c. Mott MacDonald | NEC risk allocation and management 57
19/10/2022 57
Notification
Ref (CD1,
CD2 or EW
Date
notified
Notified
by (SM
or C) By
when?
Date
action
last
updated
Action by
- org’n
Action by -
individual
Notification
Ref (CD1,
CD2 or
EW)
Date
notified
Notified by
(SM or C)
Description
of the
matter
Date action
last
updated
(early
warning
meeting)
way in
which the
effects of
the matter
are to be
avoided or
reduced.
Action by
(organisation)
Action by
(individ`ual)
By
when?
Live (Y/N) This
meeting
(Y/N)
Running
order
Description of the matter way in which the effects of the matter are to
be avoided or reduced.
Live?
(Y/N)
Discuss
this
meeting?
Running
order
Typical TSC Risk Register / Early Warning Register
Logically also a
column for Task ref

Scope Price List
Planned Preventative
Maintenance (PPM)
Monthly rates
Reactive
Maintenance (RM)
Item rates, resource rates,
provision for direct costs
Change to Scope
(14.3)
compensation event (60.1(1)).
Assess change to Prices (63)
In the contract
Something different:
- change to service
- same service in new area(s)
- change to constraints
- short term change to service
Something extra:
- with a specific time for Task
Completion and so managed
as a mini ‘project’ and
needing a
- Task Order programme
Task Order (Cl 19)
The prices for items in the Task price
list which are not taken from the Price
List are assessed in
the same way as a compensation
event is assessed. (19.6)
When is a task (eg reactive maintenance) not a Task?

19/10/2022 59
NEC
Newsletter
Sept 2017 –
based on
TSC3
https://www.lin
kedin.com/pul
se/nec-tsc-
when-task-
richard-
patterson

Tasks – the language of the contract – definitions in 11.2
• (18) A Task is work included in the service which the Service
Manager instructs the Contractor to carry out and for which
a Task Order programme is required.
• (19) Task Completion is when the Contractor has done all
the work in the Task and corrected Defects which would have
prevented the Client or Others from using the Affected
Property or Others from doing their work.
• (20) Task Completion Date is the date for completion stated
in the Task Order unless later changed in accordance with
the contract.
• (21) A Task Order is the Service Manager’s instruction to
carry out a Task.

c. Mott MacDonald | NEC TSC Introduction 61
Tasks Orders – in TSC4 in core clause 19
Service Manager Contractor
19.1 instruct a quotation for a Task
• a detailed description of the work in the Task,
• the Task starting date and Task Completion Date and
• the amount of delay damages ..
3 weeks
19.2 submits a quotation
2 weeks
19.2 replies
Acceptance
and issue of
Task Order
SM to assess
(reasons in
19.5)
• in the form of Task price list,
rates from Price List or assessed
as per compensation events
(19.6)
19.8 Task Order issued
• the Task price list inserted in Price List
and
• the work is added to the Scope.
Instruct
revised
quotation
3 weeks
19.5 SM notifies
assessment

Task and time
• 30.2 The Contractor does not start work
included in a Task until the Service
Manager has issued the Task Order and
does the work so that Task Completion
is on or before the Task Completion
Date.
• 31.2 Plan includes key dates for each Task
• 33.2 Detailed requirements of Task Order
programme – similar requirements to ECC
• 33.3 Acceptance of Task Order
programme – as ECC
• 33.4 Requirements for revising the Task
order programme – as ECC

• A delay to a Task Completion Date is assessed as
the length of time that, due to the compensation event,
planned Task Completion is later than planned Task
Completion as shown on the Task Order
programme current at the dividing date.
• The assessment takes into account
• any delay caused by the compensation event
already in the Task Order programme and
• events which have happened between the date of
the Task Order programme and the dividing date.
Task and time – compensation event assessment (63.6) – as ECC

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

• Contractor Provides the
Service in accordance with
the Scope (20.1)
• Nothing more, nothing less
• Information in the Price List is not Scope (55.1)
Provides the services

The Contractor's plan
• The Contractor's plan (21)
• In Contract Data or submitted post Contract
Date (31.1)
• If no first plan showing info required is
submitted, 25% of PSPD is retained (50.5)
• Critical document
• Contractor does not do as plan = Defect
(11.2(5))
• Client or Others do not do as plan =
compensation event (60.1(3))
• Ideally get first Accepted Plan in place before
Contract Date

• Accepted Plan is latest accepted by SM and
includes (31.2)
• various specified dates
• Key days for each Task
• order and timing of the work of the Client and
Others
• provisions for time risk allowances
• dates when Contractor needs:
• access
• things provided by Client
• information from Others
• for each operation, a statement of how the
Contractor plans to do the work identifying the
principal Equipment and resources
• other information required by the Scope
• may be a collection of documents
The plan

The plan
• reasons for not accepting (31.3)
• revised plan (22.1) shows
• actual progress achieved and its effect upon the timing of
the remaining work and
• services,
• how the Contractor plans to deal with any delays and to
correct notified Defects and
• any other changes which the Contractor proposes to
make to the Accepted Plan.
• plan revised (32.2)
• on instruction by Service Manager
• when Contractor chooses
• In a ‘mark up’ with quotation for compensation event if
plan changed (62.2)
• Service Manager assesses compensation
event whenever Service Manager has not
accepted plan for a reason in the contract
(64.1)

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

Time
• Contractor (30.1)
• does not start work until starting date and
• provides the Service throughput the Service
Period
• Client provides access to Affected
Property (35.1)
• as on Accepted Plan or
• accepted Task Order programme
• Service Manager may instruct Contractor
to stop or not start (36.1)
• compensation event 60.1(5 )
• ‘programme’ only for Tasks Orders – the
Task Order programme (33)
• Process as for programme in ECC

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

72
Payment
72
It all depends
• Different payment mechanisms
for the three main (payment)
Options (A,C,E)
• Each uses key defined terms
• Prices
• Price for Service Provided to Date
(PSPD)
• Defined Cost
• Each is defined in the main
option clauses

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

• 18 are stated in subclause 60.1
• 61.1(18) is ‘Additional compensation events
stated in Contract Data part one.
• X2, X12.3(6) & (7), Y2.5
• possibly option Z, if used to modify risk profile
• …but also depends on how the Scope is written
Compensation events – where?

• (1) The Service Manager gives
an instruction changing the
Scope, a Task or the Affected
Property
access to the Affected Property
in accordance with …. Accepted
Plan… or date on Task Order
programme
something it is to
provide….Accepted Plan…
Task Order programme
• (6) Default by Client or
Others
• (12) An event which is an
Client liability stated in
this contract
• (15) other breach of
contract by the Client
• Note: Nothing for physical
conditions or weather
Compensation events – what? – Clause 60.1

• For compensation events (CEs) affecting only quantity of work
shown in the Price List (63.1)
• change to Prices assessed as changed quantity x rate
• Other compensation events (63.2) , change to the Prices
assessed as
• the actual Defined Cost of the work already done,
• the forecast Defined Cost of the work not yet done and
• the resulting Fee
• SM and Contractor can agree to use rates or lump sums (instead
of Defined Cost + Fee) (63.3)
• Compensation events assessed as if a possible early warning
had been given (63.8)
• Quotations to include for risk (63.9) and not revised if forecasts
were wrong (66.3)
Compensation events - assessment

77
Service Manager’s assumptions
65.2
(ECC4
66.3)
Implemented compensation
events are not revisited
63.7
(ECC4
63.9)
The compensation event
assessment is to include for
anything at the Contractor’s risk
61.6
The Service Manager may state
‘SM assumptions’ to be used to
take risk out of the assessment
60.1
(13/14)
If the Service Manager ‘corrects’
the assumption, there is another
compensation event

Compensation events – Service Manager’s flexibility
65 – ‘quotation for a proposed instruction’
61.6 Service Manager’s assumptions
62.1 quotations for ‘alternative ways of dealing with the event’
different technical solutions
with and without delay to a Task Completion Date
with and without Service Manager’s assumptions
78
63.3 - ‘rates or lump sums’ instead of Defined Cost

Eg change to Scope Eg Late response from SM
Service Manager Contractor C
14.3 instruct change to Scope
61.1 notify & instruct quotation (61.2)
2 weeks
62.3 reply
61.3 notify
SM
1 week
61.4
revise
62.4 reasons
no
< 8 weeks
aware of event
accept
Service Manager
assessment
64.3 notify
62.1 alternative quotations?
61.5 no early warning?
61.6 SM assumptions?
61.2 fault
60.1 (1) ie which event?
60.1(7) ie which event?
No response?
C may notify
(61.4)
SM has another
2 weeks.
No response?
‘Treated as a
comp event’
Key:
Clause of communication
Clause informing
communication
63.1 or 63.2 Prices
63.8 no early warning?
63.9 risk
63.3 rates and Prices
63.11 ambiguity
63.14 impact on Price List (A or C)
63.10 C reacts competently
62.2 changes to Accepted Plan or
programme
TSC compensation events – key clauses
instruct
quotation
No response?
C may notify (62.6)
SM has another 2 weeks.
No response?
‘Treated as accepted’
3 weeks
62.3 quotation
3 weeks
No response?
C may notify (64.4)
SM has another 2 weeks.
No response?
‘Treated as accepted’
66.3 implemented

The truth will out
• NEC demands good
documentation
• NEC demands active
management

www.neccontract.com
Mott MacDonald NEC Contract Advisory
Services
www.mottmac.com
richard.patterson@mottmac.com
+44 (0) 1223 463 606
Further Information

84
Contents of TSC tender documents
84
• Instructions to Tenders (Pete’s) ‘Volume 0’
• Form of tender
• Sample form of agreement (if required) Contract
• Contract Data
• Part one – data provided by the Client
• Appendix to Contract Data part one – Option Z – additional conditions of contract
• Part two – data provided by the Contractor
• Scope
• Price List (may be included as a budget only for option E)
Those in red need completing by bidder so may
logically be grouped together in bidding documents

Question
Which is Plant?

Scope
Detail
Requirements
revised
Accepted Plan
Scope
provided by the
Contractor for
its plan
Contract
Data
part two
Info as Cl
22.1.
part one
Hierarchy set
by Cl60.1(1)
Tender
document Contract Date
Instructions
to tenderers
time
Accepted Plan
optional
Scope & Contractor’s plan

• defined terms in the conditions (Clause 11.2) are
capitalised, eg:
• Provide the Service
• terms identified in the Contract Data are
italicised, eg:
• the service
Details and Definitions

• specification and description of the service
(11.2(14))
• constraints on Providing the Service (11.2(14))
• Communication system (13.2)
• shares the Affected Property with Others (23.1)
• Services and other things provided (23.2)
Scope
References from the conditions - 1

• Health and safety requirements (25.4)
• Order and timing of the work of Client and Others (31.2)
• Other information to be shown on the plan (31.2)
• form of the plan issued for acceptance (31.2)
• other information to be shown on to show on a Task Order
programme (33.2)
Scope

• requirements of quality management system (40.1)
• tests and inspections (40.1)
• materials, facilities and samples for testing (41.2)
• tests on Plant and Materials before delivery (42.1)
• form of application for payment (50.2)
• Items of Equipment and things to be provided by
Contractor at end of Service Period (71.2)
Scope

Scope
• Options C, D
• Acceptance or procurement procedure (11.1(24)
• other records to be kept (52.2)
• X4, X8, X13, guarantees and bonds
• form of parent company guarantee, performance
bond
• X10 Information Model Requirements
• Y(UK)1 constraints on Suppliers

Question
• The Client wanted the rooms cleaned
weekly
• In the bid submission (Scope for the
Contractor’s plan) the Bidder proposed
cleaning only fortnightly: the discrepancy
was not spotted
• Details of the plan submitted after award
show the fortnightly cleaning – what does
the Service Manager do?

General drafting rules
• Is what you are saying:
• Essential
• Relevant
• Complete
• Clear
• Unambiguous and said just the once?
• Possible to price?
• Consistent with other parts of the document?
• Checked?

• Use a clear structure
• Especially for Scope – template see NEC’s Guide
notes
• Watch for overlap with the provisions of the
conditions
• Eg the Contractor’s plan (Cl 31.2)
• Task Order programme (33.2)
• Consider testing requirements carefully and
from the start
General drafting rules – ‘do-s’

• Understand and strike right balance between:
• ‘performance specification’ – WHAT you want
• ‘method specification’ – HOW to provide it
• Be clear with ‘requirements’ and ‘constraints’
• Use ‘The Contractor shall… ‘
• Or the present tense if you are brave enough!
• No need for ‘The Contractor shall be responsible
for…’
• Use clear ‘assumptions’ – not ‘Provisional
Sums’ (which do not exist in TSC)
General drafting rules – ‘do-s’

• Do NOT refer to ‘tender’ or ‘bid’ documents from the contract
• Beware blind incorporation of other documents not prepared
for TSC
• Eg references to ‘the Engineer’ of ‘the Architect’
• Might use a preamble ‘any reference to the Engineer’
shall mean a reference to the ‘Service Manager’ … but
are these really appropriate
• Submission is for ‘acceptance’; NOT ‘approval’ (ref Cl 14.1)
• Do not use words that lead to uncertainty eg:
• ‘to the satisfaction of’
• ‘reasonable’
• ‘suitable’ / ‘appropriate’
• ‘Cut and paste’ without review!
General drafting rules – ‘don’t-s’

97
Risk Register
97
project risk register
TSC Early Warning Register
Award
of
contract
time
Feasibility, outline design, detailed design, construction

Early warning has teeth
• If Contractor does not give early warning
then compensation events assessed as
if he had (63.8 after 61.5)
• Cost incurred because no early warning
was given are Disallowed Costs in
options C and E (11.2(24))
• Talk to each other, write it down!
• Note that:
• Early Warning Register is a post contract risk
management tool
• Risk allocation is by compensation events in
the contract

A project risk register,
the contract,
and the TSC Risk Register
Descriptio
n of the
risk
Likelihood
Impact
(time)
Impact
(cost)
Owner
Cost
allowance Expiry
date
Actions to
avoid or
reduce the risk
Description of
risk
Likelihood (%) Impact (time) Impact (cost) ‘Owner’ Cost allowance Predicted expiry
date
Actual expiry
date
Actions to avoid
or reduce the
risk
If ‘to be talked about’ in
post award ‘early warning meetings’
then include in CD1 as ‘the following matters will be
included in the Early Warning Register’. ‘Bidder’ can add
more in CD2
Contractor required to do?
If so, then in
Scope
At clients risk?
• Add as additional ‘compensation event’ (Contract Data)
• or cover as an assumption in the Scope
• or add in CD1 as ‘additional Client’s liability’
Client’s risk? – overall amount included in Client’s
contingency outside Prices
Contractor’s risk? – overall amount included in
the ‘Prices’
the contract
Included, after award, as the
TSC Risk Register
Description
of the risk
Actions to
avoid or
reduce the risk

Defined Cost
Contractor’s* costs
of components
listed in Schedule
of Cost
Components#
(SCC)
• # Short Schedule of Cost
Components in Option A
Clause 52.1: if not Defined
Cost then ‘treated as included
in the Fee’
Defined Cost, Disallowed Cost and the Schedules of
Cost Components
100
52.1
some ‘costs’
determined by
tendered rates and %’s
in Contract Data part
two
1
2
3
4
6
7
8
5
Fee= Defined Cost * fee percentage
less Disallowed Cost (C and E)
Based on tendered rate or percentage (SCC
and SSCC)
‘Real’ cost
Based on tendered rate in SSCC
Short
Schedule
has:
• people rates
in 1
• Equipment
at rates in
published
list in 2

Working with Client and Others (23)
• The Contractor co-operates with Others,
including in obtaining and providing information
which they need in connection with the service.
The Contractor shares the Affected Property
with Others as stated in the Scope.(23.1)
• Client and Contractor provide things as stated
in the Scope (23.2)

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

TSC4 new 40.1 Quality Management System
Contractor operates quality management system which complies with the Scope
Contractor provides the Service Manager with policy statement and quality plan for acceptance
… and changes to the quality plan
Service Manager may instruct Contractor to correct failure to comply with the quality plan: not a
compensation event)
Note:
• Basically copied across from PSC3
• Bidders may have an issue with their (corporate) quality policy statement needing acceptance of the SM!

Tests and inspections
all between
Service
Manager and
Contractor –
ideally the
Contractor’s
‘quality
manager’
only applies if
‘tests and
inspections’
required by
the Scope or
the law
materials, facilities
and samples for tests
and inspection
provided … ‘as
stated in Scope
If ‘test or inspection’ shows
Defect then:
• correct and repeat
• Service Manager assesses
cost to Client in repeating
test
.

• May be fundamental to assessing quality of service – X17
• …materials, facilities and samples for tests and inspection
provided … ‘as stated in the Scope’
• If ‘test or inspection’ shows a Defect then:
• correct and repeat (41.4)
• Service Manager assesses cost to Client in repeating test
(41.6)
Tests and inspections

Defects
• Need a simple (ideally joint)
• schedule of tests and list of Defects
• Notification of tests and of results (41.3)
• Service Manager and Contractor notify Defects
(43.1)
• Correcting Defects (43.2)
• Contractor corrects Defects ‘within a time which
minimises the adverse effect on the Client or Others.
• Service Manager arranges access required to
correct a Defect (43.4)

Accepting Defects
• Accepting Defects (44.1)
• Service Manager or Contractor may
propose that a Defect is not
corrected
• quotation for reduced Prices or
earlier Task Completion Date or both
• a simple mechanism to ‘do a deal’
• No payment for uncorrected Defects
(as ECC)
• No ‘Defects Certificate’ (as ECC)

108
Payment
108
Prices
Option Prices
A C 11.2(28)
Amounts in the Price column of the Price List
If there is a quantity, then Price = quantity x
rate
E11.2(29))
As above AND:
‘If no Price List is included, the Prices are the
forecast of the total Defined Cost for the
whole of the service plus the Fee.’

109
Payment
109
Price for Services Provided to Date (PSPD)
Option PSPD
A 11.2(25)
• Prices for completed lump sum items and
• quantity completed x rate where a quantity is stated
C and E
11.2(26)
the total Defined Cost which the Service Manager forecasts
will have been paid by the Contractor before the next
assessment date
plus the Fee

• All the Contractor’s costs which are not included in the
Defined Cost are treated as included in the Fee.
• Defined Cost includes only amounts calculated using rates
and percentages stated in the Contract Data and
• other amounts at open market or competitively tendered
prices
• with deductions for all discounts, rebates and taxes which
can be recovered.
Payment – Defined Cost – 52.1

Payment - Assessment
• assessing the amount due (50) – same process for all
options
• The Service Manager
• assesses the amount due at each assessment date (50.1)
• considers applications for payment (50.2)
• The Contractor
• submits an application for payment before the
assessment date
• The amount due (50.3) is
• ………

amount due
interest on late
payment
Contractor’s share
(C)
etc
Price for Works Done
to Date (PSPD)
… depends on
main option
plus… to be paid to
the Contractor
less… to be paid by
or retained from the
Contractor
low service
damages (X17)
Contractor’s share
(C)
¼ * PSPD if no first
plan (50.5)
etc

Payment - Assessment
• If the Contractor does not submit application before
the assessment date amount due is lesser of
• the amount the Service Manager assesses …
and
• the amount due at the previous assessment date.

Payment – Disallowed Cost (11.2(24) in C and E, not A)
Cost which:
• Not justified by records
• Should not have been paid to Subcontractor or
supplier
• Incurred because Contractor did not
• follow acceptance or procurement procedures in the
Scope
• give early warning
And cost of
• Plant and Materials, resources not used to Provide
the Service
• ‘correcting Defects caused by the Contractor not
complying with a constraint on how it is to Provide
the Service stated in the Scope

Option C - the Contractor’s share
• 54.1 The Service Manager assesses the Contractor’s share of the
difference between the total of the Prices and the Price for
Service Provided to Date.
• 54.3 At the dates stated in the Contract Data and when the final
amount due is assessed, the Service Manager assesses the
Contractor’s share. This share is included in the next amount due
following each assessment. The Service Manager uses in the
assessment the Price for Service Provided to Date and the total of
the Prices for the work done, current at the date of the assessment.

• Change management =
compensation events
• Poor Scope = stressed Service
Manager
It’s all about change

• 1 General Provisions
• 3 Time
• 5 Payment
• 7 Use of Equipment Plant and Materials
• 8 Liability and insurance
• 9 Termination

7 Use of Equipment Plant and Materials
• Contractor’s rights to use equipment
Plant and Materials provided by the
Client
• only to Provide the Service
• At the end of the Service Period, the
Contractor (71.2) :
• returns to the Client, equipment and surplus
Plant and Materials provided by the Client,
• provides items of Equipment for the Client’s use
as stated in the Scope and
• provides information and other things as stated in
the Scope

• 1 General Provisions
• 3 Time
• 4 testing and Defects
• 5 Payment
• X19 Task Order
• 7 Use of Equipment Plant and Materials
• 8 Liability and insurance
• W Dispute resolution and 9 termination

• Client’s liabilities (80.1)
• Contractor’s liabilities (81.1)
• Recover of costs (82)
• each Party pays for effects of events that are their liability
• net contribution
• Insurance cover (83)
• 3 types
• but NOT professional indemnity insurance – warning!–
add in Contract Data, if required
• Insurance policies (84)
• Insurance by Client (86)
• Secondary option X18 - Limitation of liability
8 Risks and Insurance

• 1 General
• 3 Time
• 5 Payment
• 9 Termination

(Options) W Disputes
• The NEC TSC is a collection of
processes to avoid disputes
DO NOT GO HERE!

123
Disputes - Process
123
Contractor, Client, Service Manager
SORT IT OUT!
Adjudicator
Decision in four weeks from receiving info
The ‘tribunal’ - arbitration
Or
the courts
(as stated in Contract Data)

Richard Patterson – Mott MacDonald Introduction

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