Certified NEC Professional Training Course

Final Examination

This paper must be answered in English.

INSTRUCTION

1. This paper consists of 4 questions.

2. Attempt ALL questions in this paper. Type your answers in the space below the each
question. Do not write in the margins. Answers written in the margins will not be marked.
3. Do not delete or modify the question, otherwise the answer will not be marked.
4. Unless otherwise specified, all working must be clearly shown.
5. The answers should be no more than 1,500 words per question (excluding the questions).
6. Full marks for the 4 questions are 80 (20 per question). The total marks scored in the final
examination will be combined with that scored in Stage 2 (full mark is 20) and hence the
full marks for this stage are 100 marks.  Pass mark is 60%.
7. No extra time will be given to candidates for uploading the paper. Please upload your
answers before the deadline of submission.

Delegate Number

BK19000147

Deadline of submission

24 Jun 2019

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Question 1 [20 marks]

A new school is to be built under ECC Option B. During the tender stage, the Contractor included a
programme with the tender submission. The Contractor has been awarded the contract.

a. Differentiate between ‘date of Completion’, ‘planned Completion’ and ‘Completion Date’ and
identify how if at all they are linked. [3 marks]

According to Clause 11.2(2), Completion is when the Contractor has, 1) done all the work which
stated in the Scope is to be done by the Completion Date and, 2) corrected notified Defects which
have prevented the Client from using the works or Others from doing their work.

“Completion Date” is the completion date unless later changed in accordance with the contract, as
stated in Clause 11.2(3). This should refers to the date stated in the Contract Data Part 1, Section 3 if
the Client has decided the completion date for the whole of the works or refers to the date stated in
the Contract Data Part 2, Section 3 if the Contractor is to decide the completion date for the whole
of the works.

The date, which PM decided Completion is deem satisfied, is the “date of Completion” as stated in
Clause 30.2: The PM decides the date of Completion and certifies it within one week of the date.

“Planned Completion” is the date which shown in the Programme that the Contractor plan to
achieve Completion. This could include open statement as to the Contractor’s project contingency,
like the float and time risk allowance. The difference between planned and contractual Completion
generates terminal float.

In general, the “Completion Date” is the Contract’s requirement for Completion (no matter in
Contract Date Part 1 or 2) known from the tender stage or at the beginning of the Contract.
“Planned Completion”, if no terminal float allowed, shall be the same as the “Completion Date”.
“Planned Completion” will be reviewed and updated when revised programme is submitted based
on Clause 32. This “Planned Completion” when compared to the Completion Date during the course
of the Works will alter the decision made by the Client or the Contractor for acceleration or
mitigation of delay. Coming to the end of the Contract, when Completion is deem satisfied, as
mentioned before, PM will decide the “date of Completion” which should be quite similar to the
“planned Completion” in last accepted programme.

b. If no programme is identified in the Contract Data, when should the Contractor submit a first
programme and what should be included? Advise what the Project Manager should do if the
Contractor does not comply? [5 marks]

According to Clause 31.1: if programme is not identified in the Contract Data, the Contractor submits
a first programme to the PM for acceptance within the period stated in the Contract Data. The
programme submitted for acceptance should include nature and extent of details in the form stated
in Scope includes, e.g. the starting date, Completion Date, planned Completion, provisions for float,
time risk allowance, etc. as stipulated in Clause 31.2.

If the Contractor failed to submit the first programme, in accordance with Clause 50.5: if no
programme is identified in the Contract Data, one quarter of the Price for Work Done to Date is
retained in assessments of the amount due until the Contractor has submitted a first programme to
the Project Manager for acceptance showing the information which the contract requires.

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To act in a spirit of mutual trust and cooperation, as Clause 10.2, the Project Manager may have a
joint meeting with the Contractor to discuss the difficulty that make the Contractor failing in
submitting the first programme. In addition, the Project Manager may make reference to Clause
13.5, to agree with the Contractor to extend the submission period of first programme.

c. The Contractor then submits a programme without identifying float or time risk allowances.
Advise what the Project Manager should do in assessing the programme. [4 marks]

In accordance with Clause 13.4, the Project Manager replies to a communication submitted by the
Contractor for acceptance. It the reply is not acceptance, the Project Manager states the reasons in
sufficient detail to enable the Contractor to correct the matter. And refer to Clause 31.3, within two
weeks of the contractor submitting the programme for acceptance, the Project Manager notifies the
Contractor of the acceptance of the programme or the reasons for not accepting with the reasons
stipulated in that Clause.

In this case, as stated in Clause 31.2, it is written that the programme should shows the provisions
for float, time risk allowances, etc. therefore, the programme submitted by the Contractor did not
comply with the Contract, i.e., it does not show the information which the Contract requires. The
Project Manager should reply within two weeks quoting this reason for the Contractor to resubmit.
If the contractor failed to comply with it, again, refer to Clause 50.5, the Project Manager will deduct
25% of the payment due.

However, if the Project Manager failed to reply the Contractor, and failed again one week after the
Contractor further notification, the submitted programme will be deemed to be accepted.

Or if the Project Manager simply reject the submission without stating the reasons as stated in the
Contract, then it would be a Compensation Event as in Clause 60.1(9).

d. The Contractor then submits another programme which includes float and time risk allowances.
Discuss the purpose of these float and time risk allowances. [5 marks]

Time risk allowances is the allowance attached to the duration of each activity or to the duration of
parts of the works. This allowance is the realistic planning to cover any risk the contractor may
encounter and owned by the contractor. This should be shown on the programme either clearly
shown in the programme or to be included in the time duration in specific work activity. When
assessing compensation event and the effect of which to the Completion Date, this part of risk
allowed time duration shall be retained to the Contractor and cannot be used to mitigate the effect
of CE. Refer to Clause 63.8: The assessment of the effect of a compensation event includes the risk
allowance for cost and time for matters which have a significant chance of occurring and are not
compensation event.

Float is the spare time in a programme excluding the time risk allowance included to specific activity.
Usually, it could be used to accommodate the time effects of a compensation event to mitigate or
avoid any delay to planned Completion. Different from float, the terminal float, i.e. the float allowed
between planned Completion and the Completion Date, is not available for accommodating the time
effect of compensation event. That means any delay to the planned Completion due to a
compensation event shall results the same delay to the Completion Date.

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e. Should the Project Manager wish to bring forward the completion of the project what should
the Project Manager do? [3 marks]

If the Project Manager would like to allow opportunity to bring forward the Completion in tender
stage, he could include the secondary option X6, which is the Bonus for Early Completion in the
Contract. This allows an incentive for the Contractor be paid a bonus for achieving earlier
Completion.

If the PM would like to bring forward the completion of project after tender awarded. He could refer
to Clause 36: the Project Manager may propose to the other an acceleration to achieve Completion
before the Completion Date. If the Contractor are prepared to consider the proposed change, then
the Project Manager could instructs the Contractor to provide a quotation. The instruction should
state the required change to the Key Dates, which mean how much the Project Manager would like
to bring the project forward. The key point for this clause is that this Acceleration means bringing
the Completion Date forward but not simply speed up the work to ensure the Completion Date is
achieved.

BK SURCO Limited
Suite 1901-2, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong
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Question 2 [20 marks]

A new railway station is to be built under ECC Option C. Due to a discrepancy between the Scope
(provided by the Client) and shop drawings (prepared by a sub-contractor), steel trusses were
produced incorrectly and when delivered to site the Contractor discovered they did not fit the RC
structure.

a. What should happen once the problem is identified? What measures could be taken to
overcome the situation? [5 marks]

According to Clause 15.1, When identify of any matter which could delay completion or increase the
total of the Prices or impair the performance of the works, the Contractor and the Project Manager
give early warning to notify the other. Therefore, when the situation happens, either the Contractor
or the Project Manager shall give an early warning. Then the issue shall be discussed in the early
warning meeting to find a most suitable way out.

In this situation, the Project Manager could treat the discrepancy as Defects, as in Clause 11.2(6),
Defect is part of the works which is not in accordance with the Scope. And according to Clause 44.1
and 44.2, the Contractor corrects a Defect whether or not the Supervisor has notified it. If the
discrepancy is due to Contractor failing to comply with the acceptance procedure stated in the
Scope, the cost for correcting this defect is a disallowed cost, as stated in Clause 11.2 (26).

Similarly for the sub-contractor, if the discrepancy is comes from the fault of sub-contractor, then
the cost for correcting the defects shall be born by the sub-contractor. That means that would have
no effect on pain/gain share in the main contract.

If the Contractor choose not to correct the Defect, he may propose to the Project Manager to accept
the defect by changing the Scope as stated in Clause 45.1. Then it is not a compensation event, in
accordance to Clause 60.1(1), a compensation event is if the Project Manager gives an instruction
changing the Scope except a change made in order to accept a Defect. And refer to Clause 45.2, if
the Contractor and the Project Manager are prepared to consider the change, the Contractor submit
a quotation for reduced prices or an earlier Completion Date to the Project Manager for acceptance.
In this case, the Pain/Gain share is theoretically maintained no change.

b. The Contractor had previously submitted the shop drawings to the Project Manager, who
approved them before the production. Who should take responsibility for any
rectification/abortive work? Discuss if the cost of this abortive work should be shared under target
contract principle. [5 marks]

Although the Project Manager approved the submission by Contractor, it does not waived the
responsibility of Contractor to fulfill the Scope. Refer to Clause 14.1 The Project Manager’s
acceptance of a communication from the Contractor does not change the Contractor’s responsibility
to Provide the Works. Therefore, the responsibility for rectification works shall still fall into the
Contractor.

The discrepancy shall still be treated as Defects, as in Clause 11.2(6), as the works is physically not in
accordance with the Scope. Similar to the previous question, the contractor could choose not to
correct the defect to submit proposal to change the Scope, which follows the procedures stated in
previous paragraphs.

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On the other hand, in this case, if the contractor choose to correct the Defect. Since the contractor
has submitted the shop drawing for approval, that gone through the acceptance procedure as stated
in the Scope. The Contractor could claim that the cost and time for correcting Defects is not
disallowed cost following Clause 11.2(26) and shall be treated as defined cost.

Under NEC4, target contract under Option C, the pain/gain shared will be determined at the final
stage. Since the cost of the abortive works shall be treated as defined cost, the contractor will be
paid for that cost by the Price for Work Done to Date plus fee during interim payment, as stated in
Clause 31. And then the Project Manager shall make a final assessment of Contractor’s share using
the final Price for Work Done to Date and the final total of the Prices to conclude the final pain/gain
share. The final amount due shall be determined based on the share percentages stated in Contract
Data Part1, section 5. In this situation, if there is no other cost affected factor, then the extra cost
will be a pain share to be shared by the Client and the Contract based on the share percentage.

c. Later, the Contractor proposes alternative marble tiles which have the same technical
performance as those specified in the Scope but a lot cheaper. The Project Manager accepts this
and notifies a Compensation Event to change the Scope. How will the Prices and Costs be
changed? [5 marks]

According to Clause 60.1 (1), The Project Manager give an instruction to change the Scope is a
compensation event. When evaluating a compensation event, the principle is to make prospective
evaluation. Since the alternative tiles works has not happened, according to Clause 63.1, the change
to the Prices is assessed as the effect of the compensation event upon the forecast Defined Cost of
the work not done by the dividing date and according to the Schedule of Cost Component.

Since the alternative material is cheaper, which should result in reduced Defined Cost and thus the
Total Defined Cost. In accordance with Clause 63.3 and 63.4, if the effect of a compensation event is
to reduce the Total Defined Cost, the Prices is not reduced unless stated in the conditions of contract
and when the change of Scope provided by the Client is proposed by the Contractor and the Project
Manager accepted. This is further ensured in Clause 63.13.

In this scenario, the defined cost shall be reduced as the material price is cheaper and the Price shall
not be reduced and should remain unchanged in accordance with the conditions of contract.

In contrary, when evaluating the compensation event, if it was the Project Manager’s assumption
and the material is finally found more expensive later on. And this results a higher actual Defined. In
that case, since the Prices is maintained the same, the result will be a pain share as the cost higher
but remains the same Prices. Or the Project Manager may act in mutual trust, claiming the effect are
too uncertain to be forecast reasonably, correcting the assumption made initially. The project
manager could notify a correction, which would be another compensation event according to Clause
60.1 (17).

d. The Contractor makes a mistake when ordering aluminum cladding, ending up with a slightly
different colour at the same price. This is identified only after installation. However, the Client’s
designer prefers the new colour to the one originally specified in the Scope. What should happen
in these circumstances? Discuss if this will be compensation event? [5 marks]

In this situation, the Project Manager could treat the discrepancy as Defects, as in Clause 11.2(6),
Defect is part of the works which is not in accordance with the Scope. In this circumstance, if the

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Project Manager prefers the new colour, he could consider to accept the Defect. As in Clause 45.1,
the Project Manager may propose to the other that the Scope should be changed so that a Defect
does not have to be corrected. Then, in accordance with Clause 45.2, if the Contractor and the
Project Manager are prepared to consider the change, the Contractor submits a quotation for
reduced Prices or an earlier Completion date or both for the Project Manager for acceptance. Since
the different materials are at the same price and are installed, there will be no change in time and
Price accordingly.

In Clause 60.1(1), it clearly stated that the Project Manager gives an instruction changing the Scope
is compensation event except a change to the Scope is made to accept a Defect. This mean the
proposed acceptance of Defect, i.e. using cladding with new colour, is not a compensation event.

BK SURCO Limited
Suite 1901-2, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong
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Question 3 [20 marks]

A new 5 storey shopping mall with two levels of basement is to be built under ECC Option D.

a. Explain how and when the first Early Warning Register for the project is produced. [3 marks]

The Early Warning Register is a register of matter which are listed in the Contract Data for inclusion
and notified by the Project Manager or the Contractor as early warning matters in accordance with
Clause 11.2(8).

The first early warning register could be found, if included, in Contract Data, Section 1. If not
included in Contract Data, in accordance with Clause 15.2, the Project Manager prepares a first Early
Warning Register and issues it to the Contractor within one week of the starting date.

b. During the excavation for the basement, the Contractor encounters large boulders which were
not indicated in the Site Information during the tender stage. Advise what the Contractor should
do. How should the Project Manager react? Who takes responsibility for any time and cost
implications? [5 marks]

Encountering large boulder may increase the total of the Prices and delay meeting a Key Date or
Completion, in this situation, the Contractor shall give an early warning by notifying the Project
Manager when aware of this, as in Clause 15.1.

In Clause 15.2, the Project Manager shall prepare or update the early warning register to include this
early warning. And the Project Manager shall instruct the Contractor to attend an early warning
meeting.

In Clause 15.3, in the early warning meeting, the attendance shall consider proposal and seek
solution to mitigate the effect. Then, the Early Warning Register shall be updated to incorporate the
decision according to Clause 15.4.

In Clause 61.3, The Contractor notifies the Project Manager of an event, which has happened within
eight weeks, if the contractor believes that the event is a compensation event or the Contractor will
loss the right for changing the Prices, Completion Date or a Key Date.

The contractor shall claim that encounter large boulder are within the Site, which is not weather
condition and an experienced contractor is unreasonable to have allowed them. Then this event
shall be a compensation event in accordance with Clause 60.1(12). If this allegation is valid, then the
Price and Time may be increased and extended respectively. This means that the Client will be
responsible for the time and cost.

On the other hand, if the allegation is not valid, then this is not a compensation event. There will be
no change in Price and Time on this event. Then, under Option D target cost contract, the Cost and
Time implication will be shared by the Client and Contractor. The final pain gain share shall be
subject to the final total cost and also the share percentage stated in Clause 54.5.

c. The Project Manager accepts the Contractor’s quotation for a compensation event. Since the
effects of the compensation event are too uncertain to be forecast reasonably, the quotation was
prepared based on Project Manager’s assumptions in forecasting the defined cost of the
compensation event. The assumptions have subsequently been found out to have been overly
pessimistic. The compensation event has been executed but the actual defined cost plus fee is

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$250,000 lower than the forecast. How should this situation be handled and can the Client recover
any of the overpayment? [5 marks]

Under Clause 61.6, the Project Manager state assumption for compensation event which is too
uncertain to be forecast reasonably and if any of the assumption is later found to have been wrong,
the Project Manager notify the correction.

As in Clause 60.1(17), the Project Manager notify the Contractor of a correction to an assumption
which the Project Manager stated about a compensation event, is another compensation event. And
if the effect of a compensation event is to reduce the total defined cost, the Prices are reduced.

In this situation, under Option D target cost contract, the Contractor will be interim paid the PWDD
base on the actual cost spent as in Clause 11.2(31), so there shall not be any overpayment in interim
payment. But in final account, since the Prices was increased by the first compensation event, the
Contractor is anticipated be overpaid because of the pessimistic assumption made by the Project
Manager. In this case, the Project Manager may correct the assumption as mentioned before,
notifying the second compensation event to correct the assumption. Since this correction shall
reduce the defined cost and thus reduce the price. Based on this handling, the Client could recover
the anticipated overpayment in final account stage.

Or the Project Manager may act in mutual trust and in collaborative approach referring to Clause
10.2, not to correct the assumption made. Then, the increase Prices remain unchanged, and the
value of this over-estimate will be added to the total target Price. There will not be any immediate
effect on what the Contractor get paid until the final account stage. The Client will later get a share
of the difference between total defined cost and the total Price as a gain share with the Contractor.
Or recover nothing if finally happen to be a pain share.

d. The curtain wall system is specified in the Scope to be Contractor design. During the design
development process, the Contractor identifies a cheaper subcontractor who can provide an
alternative design at the same cost but with a better performance. The proposed new
subcontractor’s design is agreed with the Project Manager at an early warning meeting, and the
Contractor then proceeds to enter into a subcontract. After the works are done it transpires that
some items were not included in the subcontractor’s quotation and as a consequence the costs are
greater than originally thought. The Contractor notifies a compensation event. Discuss the
Contractor’s entitlement to recover the extra cost incurred. What should have been done in these
circumstances? [7 marks]

Referring to Clause 21.1, the Contractor designs the parts of the works, which the scope states the
Contractor is to design. Clause 21.2 requires the Contractor to submit the particular of its design for
Project Manager Acceptance.

Under Clause 26.2, if the Contractor sub-contract the works, the Contractor submits the name of
proposed sub-contractor and the sub-contract documents to the Project Manager for acceptance.
The Contractor does not appoint a proposed Subcontractor until the Project Manager accepted.

As the new sub-contractor’s design is proposed by the Contractor, it is not a compensation event.
Referring to Clause 60.1(1), the change of Scope provided by the Contractor for its design which is
made at the Contractor’s request is not a compensation event.

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Since the new design is agreed with the Project Manager at an early warning meeting. Refer to
Clause 15.4, the Project Manager revise the Early Warning Register to record the decision made at
the early warning meeting and issue revised Early Warning Register to the Contractor within one
week of the meeting. If a decision needs a change to the Scope, the Project Manager instructs the
change at the same time as the revised Early Warning Register is issued.

As the works have been carried out which could assume that all relevant procedure in Conditions of
Contract have been gone through. However, as Clause 14.1, the Project Manager’s acceptance of a
communication does not change the Contractor’s responsibility to Provide the Works or liability for
its design. For the event that there are missing items in the sub-contract and results in greater cost
than originally expected. Referring to the default NEC 4 contract, there is no applicable clause to
support a compensation event on this situation.

According to Clause 61.4, the Project Manager shall reply to the Contractor’s notification of a
compensation event within one week after the notification or a longer period to which the
Contractor has agreed. This notification shall states the reason for not changing the Price and Time if
the event is not one of the compensation event stated in the Contract.

Under Option D contract, there is no extra cost effect on the interim payment, as the Contractor is
paid by PWDD on actual cost spent. The Contractor is not entitled to recover this extra cost directly.
On the other hand, the Contract may be able to recover this extra cost during final account stage if
there exists a gain share situation. This extra cost will be reflect in the Total Defined Cost for
comparison with the Final Target Price. Although the gain share is reduced, the extra cost is still
shared among the Client and the Contractor.

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Question 4 [20 marks]

A new swimming pool is to be built under ECC Option A.

a. Should an Activity Schedule be prepared, when should this be done, and who should prepare it?
[3 marks]

Activity Schedule usually be prepared at the tender stage. Activity Schedule may be prepared by the
Client or the Contractor. The client may prepare the Activity Schedule to facilitate the tender
evaluation as a levelled baseline. Or the Contractor prepare the Activity Schedule to facilitate their
own cashflow based on the construction programme then submit with the tender in Contract Data
Part 2, Section 5.

b. When if at all should the Activity Schedule be revised and what is the procedure? [5 marks]

As stipulated in Conditions of Contract, especially Option A, there are few situation to revise the
Activity Schedule.

First, under Clause 55.1, information in the Activity Schedule is not Scope or Site information. If the
activities on the Activity Schedule do not relate to the Scope, the Contractor corrects the Activity
Schedule.

Sceond, under Clause 55.3, If the Contractor, changes a planned method of working at its discretion
so that the activities on the Activity Schedule do not relate to the operations on the Accepted
Programme or corrects the Activity Schedule so that the activities on the Activity Schedule relate to
the Scope, the Contractor submits a revision of the Activity Schedule to the Project Manager for
acceptance.

Third, when assessing a compensation event, assessments for changed Prices for compensation
events are in form of changes to the Activity Schedule.

c. What is the Price for Work Done to Date when the Contractor applies for interim payment under
Option A? How can the Contractor get paid for partially completed works? [3 marks]

Activity Schedule is used to calculate the Price for Work Done to Date (PWDD) for interim and final
account purpose. Under Clause 11.2(29), The Price for Work Done to Date is the total of the Prices
for each group of completed activities and each completed activity which is not in a group. A
completed activity is one without notified Defects the correction of which will delay following work.

The Contractor will get paid according to the stage/dividend as stated in the Activity Schedule. The
Contractor shall demonstrate the completion status by updating the latest programme showing the
work progress of each activity which shall then cross check with the Activity Schedule.

d. How are compensation events assessed when using Option A? What is the purpose of the Short
Schedule of Cost Components under Option A. [5 marks]

Under Clause 63.1, the change to the Prices is assessed as the effect of the compensation event
upon the actual Defined Cost of the work done by the dividing date and the forecast Defined Cost of
the work not done by the dividing date and the resulting fee.

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The Short Schedule of Cost Component is to make up the Defined Cost. Under Clause 11.2(23)
Defined Cost under Option A is the cost of the components in the Short Schedule of Cost
Components.

In another way, under Clause 63.2, the Project Manager and the Contractor may agree rates or lump
sums to assess the change to the Prices.

Under Clause 63.14, assessments for changed Prices for compensation events are in form of changes
to the Activity Schedule.

Furthermore, if the compensation is a change of Scope provided by the Client, which the Contractor
proposed and the Project Manager accepted, under Clause 63.12, if the effect of a compensation
event is to reduce the total Defined Cost, the Price are reduced by an amount calculated by
multiplying the assessed effect of the compensation event by the value engineering percentage
stated in Contract Data, which is default 50%.

For the time implication, under Clause 63.5, is assessed as the length of time that due to the
compensation event, the planned Completion is later than planned Completion shown in the
accepted programme.

e. The Project Manager considers the Contractor’s site agent to be uncooperative and instructs the
Contractor to remove the site agent. Explain the rights of the Project Manager and the Contractor
respectively. [4 marks]

According to Clause 24.2, the Project Manager may, having stated the reasons, instruct the
Contractor to remove a person. The Contractor then arranges that, after one day, the person has no
further connection with the work included in the contract. This clause allow the right for Project
Manager to remove a person.

On the other hand, under Clause 24.1, the Contractor either provides each key person named to do
the job stated in the Contract Data or provides a replacement person who has been accepted by the
Project Manager. The Contractor submits the name, relevant qualifications and experience of a
proposed replacement person to the Project Manager for acceptance. A reason for not accepting the
person is that their relevant qualifications and experience are not as good as those of the person
who is to be replaced.

In fact, the Contractor may argue that a valid reason for Project Manager to execute Clause 24.2 is
that the site agent does not acquire relevant qualification and experience mentioned in Clause 24.1
and object for Project Manager’ request.

The Project Manager may further argue that the Contractor is breach of Contract based on Clause
10.2 that the site agent failed to fulfill acting in spirit of mutual trust and cooperation.

For further dispute, depends on the selection of Option W clause, shall be resolved by relevant
dispute resolution mechanism.

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 END OF PAPER

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