Appropriate Contract Type

I am working on an innovative project in which the Client carries significant risk (design and material/procurement related). Given the innovative nature the Client is keen to maintain as much control on site as possible and essentially plans to construct themselves but is looking for a contractor to support with staff and supply chain.

My initial thought was an ECC Option E approach in which the Client gets rates for staff to be brought in and work with own team, as well as get access to the supply chain.

However is this the best approach? I looked at the NEC4 Alliance Contract but that seems to be for much more long term arrangements with multiple partners (this scheme is a circa 6month construction phase and only has two parties). I also considered the NEC4 Supply Contract but that seems ok to use for the supply of materials but necessarily for the staff side of things. Also the PSC lends itself to the staff but not the material procurement.

Was/is my first instinct of an amended ECC Option E to allow access to supply chain and staff correct? The types of staff needed would be the Site Team (Construction Manager, Site H&S Manager etc) and they would work with Clients Engineer etc as a team.

Your idea regarding Option E seems reasonable, and you can set out procurement procedures, acceptances etc. in the Scope, without having to introduce unnecessary (and often problematic) Z-clauses.

Where you will encounter difficulty, in my view, would be in the management of time (i.e. Key Dates, Completion Date etc.) and quality, since the Client will have control over key staff (as it sounds) and in the selection of the supply chain; no sensible contractor will accept liability for either, while someone else is essentially in control.

If you can overcome these hurdles - and many others, I’m sure - it will probably work out.

Either Option E of Alliance contract will work with a few amendments.

The key item item for the contractor is not to have delay damages and to have an additional financial reward for achieving target KPI’s (safety performance, local employees, environmental compliance, Quality performance, progress)

The Client will need to be very detailed in what he wants to see from the contractors records (biometric attendance sign in, daily/weekly reports, procurement records). However, the more detailed the reporting the higher the admin cost

Thanks you for the reply Peter. I hadnt considered the issue with time but I am not sure that, given my intended approach it would be an issue.

Given I am considering predominantly using the Option E approach to get experienced site staff and access supply chain, we would just be paying defined costs for these items. I think, as suggested in next reply, the Client would have accept no DD’s and it will come down to effective management of staff time on site again accepting that the Client will responsible for any delays.

Regards supply chain, I will need to be clear in the tender for the selection criteria but agree that again the Client will need to accept liability.

What I am proposing is unusual but the Client is full aware that they would carry most/all risk. They are ok with this given the innovative nature of the scheme and likelihood of change on site. They also have a very demanding programme which, if we wait for full designs etc cannot be met. This approach seems the best way to have half a chance of meeting their expectation.

Ultimately whilst the Client has most/all risk the starting position should be much lower than an Option A or C so will come down to effective cost management.

Any thoughts on another arrangement? Most of my experience is NEC3 Options A or C. I cant find much detail on the NEC4 Supply Contract, could this not be an option?

Thanks JP,

I thought Alliance was more for projects with muliple parties or much longer timescales? As per response to Peter, I anticipate having no DD’s but am not sure anout the requirement for financial reward. I accept that without it very little incentive but if we can prove the projects business case the contractor would be in pole position for future much larger schemes. I am hoping this is incentive enough as they have almost no risk in the first place.

Any thoughts on NEC4 Supply Contract? Is that just material, can it be used for staff?

An alliance contract is an excellent contract as it allows for integration of the entire project team without the incessant commercial meetings which blight all other forms of contract.

Its normally used for very complex projects where other forms are not suitable, but that’s doesn’t mean it is confined to large projects.

In a previous life I was a QA engineer on an alliance contract in Oz and it had many mechanisms which helped focus all parties to the things that were important on the project. The contractors actual cost was covered as as well as its head office overhead. All other renumeration was based on a five KPIs, which amounted to 20% profit if they were all achieved and 0% if all were missed. Each KPI has a 100%, 50% and 25% payout depending on how close they were to achieving them.
By example, the contractor got 100% of the HSE bonus Payment if he had 0 LTI’s, 50% for 1 and 0% for 2 LTI’s.

A contractor will supply it’s full effort and best people on the projects that provide the best possible chance of a return.
You seem to be leaning to hiring a contractor to supply staff for no real return - essentially as a labour agency.

That strategy will result in the contractor shoveling average personnel onto site with no incentive to perform.
In my opinion, the Client will not achieve a good outcome.

For me, you can get a high performing contractor for the same end cost if you can incentivise him to perform.

Notional ideas about prestige and company growth are quite frankly, nonsense to a contractor.

Money talks.

Thanks again JP. Some interesting points for me to consider.