Under the ECC option A, our Contractor has offered a quicker and cheaper substructure design (which is contractor designed works) yet cl. 60.1(1) does not allow us to issue an instruction changing the WI and thus taking advantage of this generosity. Is there a way around such circumstances?
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The way around such circumstances is to follow the contract, as the mechanism is already there. You are always allowed to issue an instruction as the Project Manager(14.3) which changes the Works Information. Contractor is obliged to OBEY such an instruction (27.3). The only question that then remains is whether this is a compensation event and how it should be assessed. This would be a compensation event under clause 60.1(1) as in your example this is not Contractor design.Clause 63.10 states that if a compensation event reduces Defined cost and the event is a change to the Works Information then the Prices are reduced - i…e the Employer gets the full benefit in the cost saving that the Contractor has proposed.
I do not really think that is very fair, and does not incentivise the Contractor to come up with savings for the Employer that he will then also lose fee on. Under option C the Prices are not reduced, so that any value engineering savings that the Contractor has come up with will be shared within the gainshare calculation.
As a result some Employers have offered an amendment to the Contractor adding the concept of a “value engineering ratio” which encourages Contractors to come up with value engineering that will then be shared by both Parties in the ratio tied into contract data. I think this is quite a nice mechanism and certainly something that hopefully will be considered in NEC4 when they get round to updating the contract again.
Glenn,
Thanks for the response. I think we may have our wires crossed. As part of the tendered WI the design of the substructures was anticipated as a piled solution (an indicative design was offered up for adaption to the contractor) and let as contractor designed. The contractor used the design offered, submitted as his own and based his tender on such. Since the contract has been awarded the contractor has revisited the design and decided that deep strip footings would work - with a time and cost benefit.
Rather than just pocketing this advantage he has offered it up to ourselves and asked for an instruction. Whilst an instruction may be issued I was of the understanding that cl. 60.1(1) prevented this from being a CE as was let as contractor designed therefore there was no mechanism within the contract to enable us to take the financial saving and reduce the Prices.
Yes that is indeed correct. Under option A the contract as written gives benefit in Contractor design savings to the Contractor, but equally they run the risk of overspend in terms of design 100% as well. Whilst I can understand why you as the Employer would want the saving – is it necessarily fair that the Employer would pocket the full benefit of the saving either, with the Contractor losing not only turnover but their profit they would have made on that item as well (as CE’s are defined cost + fee)? If the solution gives you the Employer all of the design and performance that you need then why not let the Contractor have the saving, especially if it improves their programme and gives you the Employer more certainty that this project will finish by the date that you wanted it to? Of course you could insist on the original piled design being carried out, but if the only reason is so that the Contractor does not benefit in the saving as to what otherwise would be a perfectly acceptable design then this could be considered fairly short sighted by the Employer.
I do think this is a potential area that could be looked at in future revisions but this does not help you with your current contract. The potential for a “value engineering ratio” that I have seen added to some contracts would help promote shared value engineering for options A/B whether it is the Employer or Contractor designed scheme. In this particular situation by agreement if both Parties want to share the saving then I am sure you can find a way around it. If you both agree it is a compensation event (you could say it was your idea initially), and then both agree the saving to the total of the Prices (so that in essence you only reduce the Prices by 50% of the saving) then it will get you the result you are both looking for.