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NEC3 - Can Contractor Proposed Value Engineering cost more than the Billed amount?

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The Contractor has put forward a proposal for value engineering. The design was put forward by the Contractor and accepted. The quotation is now for more than the billed amount and they are also looking for an additional 2 weeks time to their programme.

Can we (as PM) value the quotation at Zero as it was a Contractor proposal to change the WI? If we knew it was going to cost more we would never have gone down this avenue.
asked May 31 in NEC3 and NEC4 Contracts by NEC3_Scotland_PM (130 points)  

1 Answer

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I am not sure how you are administering this matter under the contract, although I presume that the Contractor's proposal was formally confirmed as an instruction by the PM to change the Works Information.

If the Contractor is undertaking the design, this would not be a compensation event, see 2nd bullet point under clause 60.1 (1),  so there would be no need for a consequent quotation, unless your conditions of contract have been amended to include a procedure for 'value engineering', such as clause 16 under NEC4 (Contractor's proposals).  The Prices would not be amended, although under main options C and D the PWDD could be increased, with this addressed under the share calculation.

Under the ECC form, if the Contractor is not undertaking the design and is putting forward a proposal anyway, with main options A and B this matter would be treated as a 'routine' compensation event and the associated procedures. .With main options C and D the 1st bullet point of clause 63.11 provides that a Contractor proposal is excluded from any reduction of the Prices, although a quotation may be submitted which increases both the Prices and extends the time for Completion.

Ideally the matter should have been dealt with as a proposed instruction, with a submitted quotation which would have influenced the decision to proceed, or not as the case may be.
answered Jun 5 by Andrew W-I Panel Member (24,650 points)  
The item was designed by the Architect at tender stage (a concrete wall). The Contractor then proposed to change this to a timber wall. They designed the timber wall and issued the proposal for PM acceptance.

No instruction has been issued other than an email acceptance of the proposed change to the WI by the Contractor. We are working on the presumption that 60.1 (1) applies and that no instruction should be issued.

We are under NEC3 Option B. We agree it is a CE but that the value should be zero as it is a Contractor proposed change to the WI.
The answer is whether the Contractor has design responsibility under the contract.  You say that they designed the timber wall, but is it a case of the architect amending their drawings to reflect this change?  Maybe the answer will lie in who is the Principal Designer under the CDM Regulations 2015?

If the matter is a compensation event I don't see why it shouldn't follow the contract procedure, whereby an instruction to change the Works Information is issued by the PM.  Otherwise the wall would be a Defect as it is not in accordance with the Works Information.
The architect has not changed their drawings. The Contractor has appointed their own designer to design timber walls. Are we correct then is saying that when we (as PM) accepted the design it follows the path of 60.1 (1) i.e. no instruction is issued and the CE is valued at Zero given it was a change in design proposed by the contractor?
Unfortunately that is not necessarily the case as the Contractor has no design responsibility under the contract.

What you should have done is instruct a change to the Works Information to state that the Contractor designs this part of the works and then the matter would have come under the 2nd bullet point of clause 60.1 (1).  My understanding is that the reference to 'his design' under clause 60.1 (1) links to clause 21.1.

The fact that the Contractor has appointed a designer doesn't change the allocation of design responsibility under the contract, unless such a change is formally implemented under the contract.
I agree with Andrew's comments but suggest that an alternative approach could be for the PM to instruct a quotation for a proposed instruction ie that the Contractor will take design responsibility and design and construct the wall. The PM could then chose how to proceed. From the previous comments it does not appear that a valid instruction/CE has been given to do anything different to the original WI.