Value Engineering - NEC4 Option A

NEC3 and NEC4 Contracts Main options
1

The Contractor has found during design development that the provisional design in the Scope is no longer feasible. The provisional design is the Contractor’s risk. The Contractor was required to construct footpath to provide access to a certain area but as the design developed, it was found the route could not provide that access.

The Contractor has now designed the footpath that provides such access and fortunately reduced the quantity of material and in turn, reduced the cost to the Contractor.

The Client is now looking for the Contractor to raise a CE and pass those savings to the Client. The Client is citing value engineering,

We are of the view that we do not need to pass any saving as this is a Contractor’s risk, therefore any oppotunity found belongs to the Contractor. We have explained to the Client that had it been the other way round i.e. road required more material, we would not have been able to raise a Compensation Event.

Is our interpretation correct ?

Thanks in advance.

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2

Its not entirely clear how the Scope has been prepared and exactly what it requires the Contractor to do, but the following principles generally apply:-

  • The Contractor is obliged to provide the works in accordance with the Scope, as per clause 20.1, depending on the wording of the Scope you might have to complete the design, submit it for acceptance, built the path as per drawings or a spec, etc. The Contractor may also have the discretion to design it how he wishes and not be obliged to pass on the costs savings. The Contractor just need to do the works in accordance with the Scope. The words provisionally suggest it wasn’t clear.
  • If the works are not in accordance with the Scope, its likely to be a Defect. See definition in clause 11.2(6). If it is a Defect section 4 of the contract allows the parties to accept the Defects or the Client can correct it if is uncorrected after the Defect Date and deduct the cost from the amount due.
  • Clause 16.1 allows the Contractor to propose changes to the Scope for value engineering purposes. He’s not obliged to offer value engineering, but doesn’t have the discrete to change the Scope without either a PM’s instruction or Contractor’s proposal being agreed (or the Defect being accepted), unless the Scope was silent about how the path was routed/built.

The answer will therefore depend on the wording on the Scope and what instructions may have been given.

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