MTRC NEC4 Training Level 2 - Module 1 Rev 0.2

MTRC NEC4 Training
Module 1 - Precontract
Ian Heaphy & Daniel Cheung
July 2021 making the difference
making the difference

Turner & Townsend Confidential
Agenda – Module 1 Precontract
■ Welcome and introductions

■ Contract selection
■ Main and secondary Option selection
■ Contents of a contract
■ Contact Data
■ Scope
■ Site Information
■ Pricing information
■ Activity Schedule
■ Bill of Quantities
■ Tender assessment
Turner & Townsend MTRC NEC4 Level 2 – Module 1 2

Speakers
Ian Heaphy Daniel Cheung

Dip(Int Arb), MBA, G.Dip.(Law), BEng
PGDip(law), BSc(Hons), (Hons) MCIArb, MIEAust
FRICS, FCIArb,
FInstCES, MACostE
Summary of NEC experience Summary of NEC experience
■ Over 20 years of NEC experience ■ Over 10 years hands on experience
■ Member of NEC4 Contract Board ■ Procurement, contract drafting, tender management,

ECI, project start up, setting up of practical contract
administration processes, resolving project challenges
■ Supported the adoption of NEC in Hong Kong since in collaborative approach
2006
■ Currently advising AA (leading team over 25 staff
■ Currently advising AA, MTR and DSD in HK delivering projects), MTR and DSD
■ Supported numerous clients in the practical application ■ Delivered numerous trainings and seminars on NEC
and management of NEC contracts – LUL, HS2, contract and other forms of contract in English,
Crossrail, Network Rail. Aldar, Lantis, Sydney Water Cantonese and Mandarin for all relevant professional
institutions in HK, ICE in the UK and others in China
■ Services provided on NEC contracts include Project
Management, Commercial Management, issues ■ Parttime lecturer for HKU SPACE
resolution – independent expert, adjudicator, expert
witness

Health, safety & wellbeing
■ Emergency procedures
■ Facilities
■ Timings
■ Phones
■ Meeting protocols
■ Questions

Training modules
Module Module Module Module Module

One Two Three Four Five
Roles &
responsibilities Compensation Time and the
Precontract Commercial
and risk events programme
management
• Contract • What are • Payment process

• Role of the
selection compensation • Contract dates • PWDD
Project Manager
• Main and events • The programme • Defined Cost
& Supervisor
secondary option • The • Delay • Schedule of Cost
• Contractor’s
selection compensation assessment Components
obligations
• Contents of a event process • Acceleration • Reporting
• Risk
contract • Assessment and • Completion and • Title
Management
• Tender implementation take over • Contractor’s
assessment proposals

Training modules
Module Module Module Module Module

One Two Three Four Five
Roles &
responsibilities Compensation Time and the
Precontract Commercial
and risk events programme
management
• Contract • What are • Payment process

• Role of the
selection compensation • Contract dates • PWDD
Project Manager
• Main and events • The programme • Defined Cost
& Supervisor
secondary • The • Delay • Schedule of Cost
• Contractor’s
option selection compensation assessment Components
obligations
• Contents of a event process • Acceleration • Reporting
• Risk
contract • Assessment and • Completion and • Title
Management
• Tender implementation take over • Contractor’s
assessment proposals

NEC4 Suite
of Contracts
Module 1 Precontract
making the difference 7

NEC4 suite of contracts

SC Supply Contract
PSC Professional Services Contract & PSS Professional Services Subcontract
ECC Engineering and Construction TSC Term Service Contract
Higher
Contract FMC Facilities Management Contract
ECS Engineering and Construction TSS Term Service Subcontract
Subcontract FMS Facilities Management Subcontract
Complexity
DBO Design Build, Operate

ALC Alliance Contract
ECSC Engineering and Construction TSSC Term Service Short Contract
Short Contract FMSC Facilities Management Short Contract
ECSS Engineering and Construction FMSS
Short Subcontract Facilities Management Short Subcontract
PSSC Professional Services Short Contract
Lower
SSC Supply Short Contract
FC Framework Contract
DRSC Dispute Resolution Service Contract
business case design construction operation

■ NEC4 contracts were released in June 2017

■ ALC released in June 2018
■ Amendments issued in
■ January 2019
■ October 2020
■ User Guides provided for all contracts
■ Volume 1 establishing a procurement and contract strategy
■ Volume 2 preparing an NEC4 contract (one per main and short contract)
■ Volume 3 selecting a supplier
■ Volume 4 managing an NEC4 contract (one per main and short contract)

■ Contracts are divided into 4 categories

■ Works – physical construction works which may include design (ECC,
ECS, ALC, ECSC, ECSS)
■ Services
■ professional services (PSC, PSS, PSSC),
■ term services / facilities management (TSC, TSS, FMC, FMS, TSSC,
FMSC, FMSS)
■ design build and operate (DBO) links together construction with
operation
■ Supply – supply of goods and associated services (SC, SSC)
■ Other
■ Framework Contract (FC)
■ Dispute resolution service contract (DRSC)
■ ECC v PSC
■ PSC used by a client to engage a consultant to provide a service such as
design, project or commercial management, but excluding any physical
works such as site investigation
■ ECC used by a client to engage a contractor to undertake physical works of
any type, civils, E&M etc – with any level of design responsibility (build
only to EPC / turnkey)
■ Main contracts v sub contracts
■ Subcontracts are designed to operate “back to back” with the main
contracts
■ Client, Project Manager / Service Manager and Supervisor all become
Contractor
■ Timescales are changed to accommodate the timescales in the main
contract
■ Contractor does not have to use NEC subcontracts but it is recommended
■ Short contracts
■ To be used for contracts that comprise lower risk and complexity
■ No stated maximum value for their use
■ Contracts that do not need the sophisticated management techniques in
the main contracts
■ For example no requirement for a programme in the ECSC, if one is required
the content is as detailed in the Scope
■ No option for target costs or payment on a cost reimbursable basis
■ Payment is lump sum or unit rate basis or a combination of the two

NEC4 ECC
Contract
Structure

NEC4 contract structure
Using the NEC4 Engineering and Construction Contract (ECC) as an

example
■ Core Clauses – always apply
■ Main options – one has to be selected (A - F)
■ Secondary options (X)
■ Dispute resolution options (W)
■ Geographically specific clauses (Y)
■ Z clauses – additional / amendments to the standard
■ All contracts are “shell contracts” and require a high level of project
specific information to make them work

NEC4 contract structure
Core clauses - common to all options and form around 75% of the
contract:
1 - General
2 - The Contractor’s main responsibilities
3 - Time
4 - Quality Management
5 - Payment
6 - Compensation events
7 - Title
8 - Liabilities and insurance
9 - Termination

Main Option clauses
■ ECC Option A - priced contract with activity schedule

■ ECC Option B - priced contract with bill of quantities
■ ECC Option C - target contract with activity schedule
■ ECC Option D - target contract with bill of quantities
■ ECC Option E - cost reimbursable contract
■ ECC Option F - management contract

Option A
Priced contract with an activity schedule

■ Lump sum contract
■ Project should be well defined at tender and subject to only minimal change as this
option does not accommodate change as well as other Options
■ Payment based on Activity Schedule (see later slides)
■ Contractor only paid for completed activities
■ Financial risk and therefore, reward largely borne by the Contractor
■ Greater certainty of price for Client
■ Simpler post contract administration
■ Suitable for design and construct on the basis of a performance / output based
Scope

Option B
Priced contract with Bill of Quantities
■ Remeasurement contract
■ Bill of Quantities (BQ) produced by the Client, rates priced by Contractor (see later
slides)
■ Contractor paid for quantity of work completed each month
■ Risk of quantities both positive and negative borne by Client
■ Financial risk of rates borne by the Contractor
■ Works should be well defined at tender to allow a BQ to be produced
■ Changes in quantity can be easily accommodated but Scope should be subject to

only minimal change as this option does not accommodate change as well as other
Options
■ Greater post contract administration

Option C & D
Target contract with Activity Schedule (C) / Bill of Quantities (D)

■ Works should be adequately defined to allow target to be set
■ Target Cost set via Activity Schedule or BQ
■ Target Cost moves with changes - compensation events
■ Greater flexibility for the Client to develop the project post award
■ Financial risk shared between the Contractor and Client via gain share / pain share
■ Aligns the Parties objectives - helps create a partnering environment - both Parties
encouraged to control costs through sharing the risk of over / under spend
■ Contractor paid on a cost reimbursable - Defined Cost plus Fee - basis
■ Suitable for projects that have a high degree of risk and uncertainty
■ Open book approach creates trust and assists in the pricing of change
■ Reduced incentive for the Contractor to try to generate additional profit through
inflated claims - potential for claims / disputes reduced
■ Greater post contract administration
■ Less cost certainty for the Client

Target contracts
Pain
Share
Gain
Share Client
Pays
Final Final
Prices Client Prices Final
Pays Defined
Final
Cost
Defined
+ Fee
Cost
+ Fee

Option E
Cost Reimbursable contract
■ Limited / no project definition required at tender stage
■ Immediate / earlier start on site
■ Contractor paid on a cost reimbursable (Defined Cost plus Fee) basis
■ Client carries risk of cost increases & gets the benefit of all savings
■ Limited financial risk borne by the Contractor (Disallowed Costs)
■ Full flexibility available to the Client
■ Potential for claims / disputes reduced

Option F
Management Contract
■ Contractor manages the work of Subcontractors
■ Contractor tenders' rates or prices for any work it will undertake plus Fee
■ Limited project definition required at tender stage
■ Earlier start on site
■ Contractor directly employees Subcontractors and is responsible for managing them

to time and quality
■ Subcontractors paid on prime cost, Client carries risk of cost increases
■ Greater flexibility available to the Client
■ Potential for claims / disputes reduced

Financial risk reward of the main Options

Contractor’s risk / reward
Max Min
A Lump sum
Flexibility of Client
B Bill of quantities
C Target cost contracts

D
Management
F contract
E Cost +
Fee
Min Client’s risk / reward Max

Dispute resolution options
■ There are 3 dispute resolution option clauses which concern rules and
procedures for adjudication or a dispute review board and then review by
a subsequent tribunal, which is either litigation or arbitration
■ Client must select 1 of these:
■ W1 Adjudication - used outside of the UK
■ W2 Adjudication – used in the UK (to comply with UK Construction Act)
■ W3 Dispute avoidance board
■ In Hong Kong many users do not select any of the above and introduce
their own dispute resolution clauses based on local practice – Dispute
Resolution Advisor, Mediation, Arbitration
■ Security of Payment Ordinance to be introduced in Hong Kong may create
the need for Hong Kong specific dispute resolution Option

Secondary Option clauses
No. Title Content

X1 Price adjustment for Transfers the risk of inflation to the
inflation (used only with Client, with an amount added to each
Options A, B, C and D) payment to reflect inflation based on
published indices
X2 Changes in the law Transfers the risk of a change in the
law of the country where the Site is
located to the Client, any such change
will be a compensation event +/-
X3 Multiple currencies (used Transfer a part of the risk of currency
only with Options A & B) fluctuations to the Client
X4 Ultimate holding company Parent company guarantee
guarantee
X5 Sectional Completion Creates the obligation for the
Contractor to complete sections of the
work by set dates
No. Title Content

X6 Bonus for early Completion Creates a positive incentive for the
Contractor to complete the works
before the Completion Date(s)
X7 Delay damages Creates a negative incentive for the
Contractor to complete the works on
or before the Completion Date(s) –
the equivalent of liquidated damages.
X8 Undertakings to the Client Collateral warranties between the
or Others Contractor or a Subcontractor and the
Client or Others
X9 Transfer of rights Transfers the ownership (IPR) of
design prepared for the works from
the Contractor to the Client

No. Title Content

X10 Information modelling Deals with the contractual aspect of
BIM such as ownership of the model,
liability for Defects etc.
X11 Termination by the Client Allows the Client to terminate for any
reason including convenience
X12 Multiparty collaboration (not Overlays the bi-party contract with a
used with Option X20) requirement for the Contractor to
collaborate with Others to achieve the
Client’s objectives, performance is
incentivised against a shared set of
key performance indicators set by the
Client
X13 Performance bond Form and value of the bond are
identified in the Scope and Contract
Data

No. Title Content

X14 Advanced payment to Provides for a payment to be made to
Contractor the Contractor at the start of the
contract to create a positive cash flow
X15 The Contractor’s design Reduces the Contractor’s liability for
design from fitness for purpose to
reasonable skill and care and requires
the Contractor to provide Professional
Indemnity Insurance
X16 Retention (not used with The amount of retention and any
Option F) retention free amount is stated in the
Contract Data - note there is no cap
on retention.

No. Title Content

X17 Low performance damages Sets a level of pre-agreed damages
payable by the Contractor for a failure
of the completed works to achieve a
set performance level
X18 Limitation of liability Reduces the Contractor’s liability
under the contract from an unlimited
level to the level stated in the Contract
Data, limits can be set for different
types of loss as well as providing an
overall cap
X20 Key performance indicators Creates an incentive regime where the
(not used with Option X12) Contractor will receive additional
payments if it meets or exceeds key
performance indicators set by the
Client

No. Title Content

X21 Whole life cost Creates an incentive for the Contractor
to propose changes to the Client’s
Scope that will reduce the long term
cost to the Client of owning and
operating the completed asset
X22 Early Contractor See additional slides
involvement (used only with
Options C and E)

X22 Early Contractor involvement (used only with Options C and E)

■ Allows the engagement of a Contractor at an earlier stage in the development
of a construction project than would normally be possible
■ Complete flexible over which point in the development of the project the
Contractor is engaged – concept, outline or the start of detailed design
■ A Price and programme for the whole of the works cannot be determined but
the Client want to benefit for the Contractor’s input into the development of
the project in areas such as
■ construction techniques and buildability
■ logistics, timing, phasing and the programme for the works
■ early supply chain engagement
■ pricing of the works
■ if the Contractor is engaged on a design and build basis, design development

Stage One Stage Two
Selection process Pre-construction Construction Works

• Qualitative services • Supply chain engagement
submission – • Construction and • This may involve completion of outstanding
resources, buildability advice design
methodology, • Logistics
track record • Risk identification and
• Rates and mitigation
percentages in • Value engineering Break point
Contract Data part • Programming and
two including the planning advice
fee percentage • Early supply chain
• Information to be engagement
used to set the • Design development
target for the • Setting the dates and
Stage Two works prices for Stage Two
Certainty of scope, cost and time / risk reduction
Turner & Townsend


■ A single contract with a breakpoint not two separate contracts – an agreement
to agree to the Stage Two works
■ In Stage One the Contractor is paid on a cost reimbursable (Defined Cost plus
Fee) basis
■ If Option C is used a target cost is developed during Stage One for the Stage
Two works, using Pricing Information provided by the Contractor
■ The programme for the works is developed during Stage One and the contract
dates for Stage Two are agreed
■ The intent is to use the Contractor’s expertise to develop a better project, in
terms of time, cost and quality
■ The process also allows the Client to refine their requirements and to consider
the viability of the project before they proceed to construction


■ If the Parties cannot agree the price and programme for Stage Two or the
Client does not wish to proceed with the works the contract is brought to an
end and both Parties walk away without consequence
■ If the contract does not proceed to Stage Two the Client can appoint another
Contractor to complete the works
■ Challenge in X22 is drive the agreement of Price and programme for the Stage
Two works, in the absence of competition, that both Parties can sign up to
■ There can also be challenges in complying with procurement regulations as the
works are awarded before a Price for the whole of the works has been agreed

Secondary option clauses
Regional specific secondary Options required to enable the contract to meet the
requirements of law
■ Y(UK) United Kingdom

■ Y(NZ) New Zealand
■ Y(IR) Ireland
■ Y(AUS) Australia
■ There are no regional specific secondary Options for Hong Kong but this may
change if the Security of Payment Ordinance is enacted

Z clauses
■ Z clauses are additional conditions of contract included in the Contract Data

part one that allow a Client to add to or amend the standard conditions of
contract
■ They are the same as Special Conditions of contract under standard MTRC
contracts
■ Z clauses are commonly included in NEC4 contracts to
■ accommodate the requirement of local laws – i.e. the Personal Data (Privacy)
Ordinance
■ reflect MTRC corporate requirements – anti bribery and corruption requirements
■ to change the risk profile – adding or deleting compensation events
■ Well written z clauses can enhance the contract, poorly written ones can
damage it

Z clauses
■ Development Bureau has developed a series of suggested z clauses for NEC3

contracts
■ MTRC is developing it own z clauses for use with NEC4
■ Z clauses that add to the existing conditions of contract are generally not an
issue, those that amend the existing conditions needs to carefully considered
and drafted to ensure they do not detract from the intent of the NEC4 contracts
■ Z clauses should not be used to place constraints on how the Contractor
Provides the Works as these should be included in the Scope
■ The Scope is information which … states any constraints on how the Contactor
Provides the Works ….
■ The benefit of including constraints in the Scope is that the Project Manager
has the power to change the Scope unilaterally whereas a change to a z clause
– as with any clause in the conditions of contract – can only be changed by the
mutual agreement of the Parties

Case study 1 – main and secondary Options
What main and secondary options could you select for the following
scenarios
1. An extension to an existing rail line comprising three new stations is to be
constructed, the detailed design of which has been completed and is unlikely
to be subject to major change post contract. There is requirement to open the
first station on the extended line as soon as possible to meet the opening of a
new housing development.
2. The need to urgently replace a rail bridge over a heavily trafficked road
junction in the centre of Kwon Tong. The design of the works has only just
started.
3. A set of sidings is no longer required and MTRC wish to remediate the site to
remove contamination so that is can be sold for development. The type of
contamination is known but not the extent. A developer is interested in
purchasing the site but wants assurance the contamination will be fully dealt
with.

Case study 1 – main and secondary Options
What main and secondary options could you select for the following
scenarios
4. A new rail line is to be developed. The works will be complex, of high value
and will require innovative construction techniques. The works will take an
estimated 5 years to complete. Outline design is nearing completion. MTRC
are considering opening the new line in phases as it wants to start to generate
revenue as soon as possible.

NEC4 ECC
Contract
Documents

ECC v GCC – contract documents
NEC4 – ECC MTRC GCC

Formal Agreement
Letter of Acceptance
Letter of Clarification
Contract Data Part 1 & 2 Form of Tender
Price – Activity Schedule A & C / BQ B & D
Conditions of Contract General Conditions of Contract
Z clauses Special Conditions
Scope Client’s Drawings & Specification (General,
Particular & Materials and Workmanship
Specifications)
Site Information
Programme (optional at contract award)
Other executable documents such as Other executable documents such as
Bonds, Guarantees etc. Bonds, Guarantees etc.
Contract Data
The Contract Data is in 2 parts:

■ Part 1: Completed by Client and issued as part of tender
documentation
■ Main and Secondary Options selected
■ Details of Client, Project Manager, Supervisor, etc.
■ Starting date, access dates, completion date, key dates etc.
■ Part 2: Completed by Contractor and returned as part of tenderer’s
submission
■ Contractor’s key people (e.g. Agent, Construction Manager etc.)
■ Tendered total of the Prices
■ fee percentage
■ Data for use with Schedule of Cost Components

Case study 2 – Contract Data
Let us review the Contract Data template in the contract and consider what should be
included for some of the key entries

Scope
■ NEC4 ECC can be used for any type of construction work, this flexibility it
achieved by leaving the finer details of the work to be prescribed within the
Scope
■ Scope is the most important part of an NEC4 contract and as with any
contract form the client needs to be clear on what the supplier has to do and
any restrictions on how they do it
■ Scope is information which
■ specifies and describes the works or
■ states any constraints on how the Contractor Provides the Works
and is either
■ in the documents which the Contract Data states it is in or
■ in an instruction given in accordance with this contract
■ Scope will include a number of documents – general specification, particular
specification, preambles, client’s drawings, etc. as well incorporating by
reference local and international standards
Scope
■ Scope is more than just a specification and drawings and is cross-referenced

throughout the core clauses, examples:
■ 11.2(2) Completion is when the Contractor has done all the work which
the Scope states it is to do…
■ 11.2(6) A Defect is a part of the works which is not in accordance with the
Scope ….
■ 13.2 If the Scope specifies the use of a communication system, a
communication has effect when it is communicated through the
communication system specified in the Scope
■ 20.1 The Contractor Provides the Works in accordance with the
Scope
■ 25.1 The Contractor shares the Working Areas with Others as stated in the
Scope.

Scope
■ Scope is more than just a specification and drawings and is cross-referenced

throughout the core clauses, examples:
■ 25.2 The Client and the Contractor provide services and other things as
stated in the Scope
■ 27.4 The Contractor acts in accordance with the health and safety
requirements stated in the Scope
■ 35.2 If the Client want to use any part of the works before take over this
should be stated in the Scope
■ 40.1 The Contractor operates a quality management system which
complies with the requirements stated in the Scope
■ 41.1 Tests and inspections are as required by the Scope or the applicable
law

Scope
■ The Project Manager has the power to change the Scope

■ A change to the Scope will be a compensation event unless
■ the change is made to accept a Defect (covered under Defect procedures)
■ the change is made the Scope provided by the Contractor for its design
which is made
■ at the Contractor’s request or
■ to comply with the Scope provided by the Client
■ Contractor’s Scope for its design - if any - will be included in the Contract
Data part two
■ Contractor’s Scope for its design is design provided by the Contractor at
tender stage – prior to the Contract Date – that the Contractor has to comply
with post contract, similar to Contractor’s design proposals under more
traditional forms of contract

Site Information
■ Site Information is a factual, reference document provided by the Client to

the Contractor at tender stage
■ 11.2 (18) Site Information is information which
■ describes the Site and its surroundings and
■ is in the documents which the Contract Data states it is in
■ It used by the Contractor to plan their work and price their tender
■ It does not change after the Contract Date and remains fixed
■ The Contractor provides the works in accordance with the Scope and not the
Site Information
■ Site Information is only used post contract to assess whether the Contractor
is entitled to a compensation event for unforeseen physical conditions

Site Information
■ Site Information would normally comprise

■ Existing site layout drawings
■ Details and locations of existing structures and services
■ Factual data – not interpretive – gathered from site investigations such as
trial pits, boreholes etc.
■ Creates a “baseline” of expected conditions – anything worse than can be
reasonably expected is a compensation event
■ Operates in a similar way to a geotechnical baseline report (GBR) but
negative only
■ If a GBR is to be included in an NEC4 ECC this could form part of the Site
Information or introduced via a z clause depending on the contractual
consequence if conditions are different to those that are identified the GBR

Activity Schedule
■ The Activity Schedule is the activity schedule identified in the Contract

Data unless later changed in accordance with the contract
■ The Client may provide an outline activity schedule at tender stage to
create a basis for assessing tenders against each other and against any
existing cost plan or budget
■ Contractor is normally able to break down the outline activity schedule
further and / or revise it to match their construction methodology
■ Each activity represents the total cost for that part of the works including
direct cost, site running costs, overheads, profit and risk – total of the
activities in the Activity Schedule = total of the Prices
■ Information in the Activity Schedule is not Scope or Site Information
■ Activity Schedule has to align with programme to allow ease of
administration

Activity Schedule
■ The Activity Schedule changes as a result of compensation events

■ Contractor also has to revise the Activity Schedule in order for it to
continue to relate to the Scope and the Accepted Programme and submits
revisions to it to the Project Manager for acceptance
■ Reasons for not accepting the revised Activity Schedule is that
■ it does not relate to the operations on the Accepted Programme,
■ any changed Prices are not reasonably distributed between the activities
which are not completed or
■ the total of the Prices is changed
■ This allows the Contractor change the Activity Schedule to match any
changes in their construction methodology and to maintain the total of the
Prices

Activity Schedule
Activity Activity Price HK$ Activity Jan Feb Mar Apr

No.
Detailed
design of
1 Detailed design of $500,000 tunnel
piled foundations
2 Site set up $250,000 Site set up
Fabrication
3 Fabrication of tunnel $1,000,000
of tunnel
boring machine boring
machine
4 Site clearance $300,000
Site
clearance
5 Install piled $750,000

Install piled
foundations in Area A foundations
in Area A
6 Install piled $1,000,000
foundations in Area B
Install piled
foundations
Total of the Prices $3,800,000 in Area B

Activity Schedule
Activity Activity Price HK$ Activity Jan Feb Mar Apr

No.
Detailed
design of
1 Detailed design of $500,000 tunnel
piled foundations
Site set up
2 Site set up $250,000
Fabrication
3 Fabrication of tunnel $1,000,000 of tunnel
boring machine boring
machine
4 Site clearance $300,000 Site
clearance
5 Install piled $750,000 Install piled

foundations in Area A foundations
in Area A
6 Install piled $1,000,000
foundations in Area B Install piled
foundations
CE1 Divert water main $100,000 in Area B
CE1 divert
Total of the Prices $3,800,000 water main

Bill of Quantities
■ The BQ is the bill of quantities identified in the Contract Data unless later
changed in accordance with the contract
■ BQ is produced by the Client
■ It is prepared and remeasured in accordance with the method of measurement
■ Method of measurement may be an industry standard or one amended or
created by the Client
■ A preamble will commonly form part of the BQ as required by the method of
measurement
■ The Client takes the risk of errors in the BQ including departures from the
method of measurement
■ Each rate contains the entire cost the Contractor will incur in undertaking that
item of work including direct cost, site running costs, overheads, profit and risk
■ Remeasurement is made on the basis of the actual quantities of work, or
proportion of any lump sums, the Contractor has completed – not construction
/ as built drawings
■ Information in the BQ is not Scope or Site Information

Risk
■ Contractors risk
■ The Contractor has to allow within the Prices for the risks they carry under
the contract
■ All risks that are not grounds for compensation events
■ Clients risk budget
■ This does not form part of the Prices and is an allowance for Clients risks i.e.
changes in Scope

Provisional sums
■ Provisional and prime costs sums are not included in the NEC4 ECC
■ They can be incorporated via a z clause that will need to detail how they
are evaluated and paid under each main Option
■ Alternatives
■ Exclude work that would normally be included as a Provisional Sum and add
the work in when the final scope is known as a compensation event
■ Include an assumed scope of work and possibly an assumed value at tender
stage, then omit and add back the work once the final scope is known
■ In both cases the actual work required will be priced based on Defined Cost
plus Fee – the same way most Provisional Sums are dealt with – plus any
time impact

Case study 3 – contract documents
In which part of the contract would you include the following information
■ Factory acceptance testing requirements
■ Factual data from a borehole
■ The boundaries of the Site
■ Constraint on working hours dictated by the Planning Department
■ Existing Site layout drawings
■ The order and timing of the work to be done by other contractors that will
interact with the Contractor Providing the Works
■ Exclusion of the Contracts (Right of Third Parties) Ordinance
■ An MTRC requirement to only use timber from a list of sustainable sources
■ A Sectional Completion Date
■ Requirements for the Contractor’s quality management system

NEC4 ECC
Tender
Assessment

Tender assessment
■ The tender assessment process will follow standard MTRC procedures and
tender evaluation processes
■ The commercial assessment will need to consider the main Option
selected and the data provided by the Contractor in Contract Data part
two
■ In main Options A to D there will be a tendered total of the Prices and this
will form a key part of the assessment however, consideration will need to
be given to the overall outturn cost
■ In Options A & B the overall outturn costs will be the tendered total of the
Prices plus or minus compensation events
■ Compensation events will be priced using Defined Cost plus Fee
■ Elements of Defined Cost plus the fee percentage will be tendered by the
Contractor in Contract Data part two
■ An outturn cost will need to be modelled considering the tendered total of
the Prices plus an allowance for compensation events evaluated using the
data in the Contract Data part two
Tender assessment
■ In Options C & D the final outturn cost will need to be considered as with
Options A & B, however consideration will also need to be given to the
Defined Cost plus Fee the Contractor will be paid for the works and that
will determine the Contractor’s share
■ This will involve modelling the final Defined Cost plus Fee for the whole of
the works using the data in Contract Data part two
■ In main Options E & F there is no total of the Prices and the commercial
analysis will be based on the data in the Contract Data part two
■ In some cases Client’s may dictate some of the rates and percentages in
Contract Data part two or place limits on them i.e. set a minimum or
maximum fee percentage in order to simplify the tender assessment
process

Tender assessment
Main Tendered Defined Cost plus Fee Contractor’s share

Option total of the
Prices Compensation Payment
events
A
✔️ ✔️ ❌ ❌
B
✔️ ✔️ ❌ ❌
C
✔️ ✔️ ✔️ ✔️
D
✔️ ✔️ ✔️ ✔️
E
❌ ❌ ✔️ ❌
F
❌ ❌ ✔️ ❌

Turner & Townsend Limited
Unit 201
2nd Floor, Pioneer Place
33 Hoi Yuen Road
Kwun Tong
Kowloon
Hong Kong
t: + (852) 2834 6122

e: daniel.cheung@turntown.com
www.turnerandtownsend.com
© Turner & Townsend Limited. This content is for general information purposes only and does not purport to constitute professional advice. We do not make any
representation or give any warranty, express or implied, and shall not be liable for any losses or damages whatsoever, arising from reliance on information contained in this
document.
It must not be made available or copied or otherwise quoted or referred to in whole or in part in any way, including orally, to any other party without our express written
permission and we accept no liability of whatsoever nature for any use by any other party.

MTRC NEC4 Training Level 2 - Module 1 Rev 0.2

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MTRC NEC4 Training Level 2 - Module 1 Rev 0.2

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MTRC NEC4 Training

July 2021 making the difference

making the difference

Agenda – Module 1 Precontract

■ Welcome and introductions

Turner & Townsend MTRC NEC4 Level 2 – Module 1 2

Ian Heaphy Daniel Cheung

Summary of NEC experience Summary of NEC experience

■ Over 20 years of NEC experience ■ Over 10 years hands on experience

■ Member of NEC4 Contract Board ■ Procurement, contract drafting, tender management,

Turner & Townsend MTRC NEC4 Level 2 – Module 1 3

Health, safety & wellbeing

Turner & Townsend MTRC NEC4 Level 2 – Module 1 4

Module Module Module Module Module

• Contract • What are • Payment process

Turner & Townsend MTRC NEC4 Level 2 – Module 1 5

Module Module Module Module Module

• Contract • What are • Payment process

Turner & Townsend MTRC NEC4 Level 2 – Module 1 6

making the difference 7

NEC4 suite of contracts

DBO Design Build, Operate

business case design construction operation

Turner & Townsend MTRC NEC4 Level 2 – Module 1 8

NEC4 suite of contracts

■ NEC4 contracts were released in June 2017

Turner & Townsend MTRC NEC4 Level 2 – Module 1 9

NEC4 suite of contracts

■ Contracts are divided into 4 categories

NEC4 suite of contracts

NEC4 suite of contracts

Turner & Townsend MTRC NEC4 Level 2 – Module 1 12

making the difference 13

NEC4 contract structure

Using the NEC4 Engineering and Construction Contract (ECC) as an

Turner & Townsend MTRC NEC4 Level 2 – Module 1 14

NEC4 contract structure

Turner & Townsend MTRC NEC4 Level 2 – Module 1 15

Main Option clauses

■ ECC Option A - priced contract with activity schedule

Turner & Townsend MTRC NEC4 Level 2 – Module 1 16

Priced contract with an activity schedule

Turner & Townsend MTRC NEC4 Level 2 – Module 1 17

Priced contract with Bill of Quantities

■ Contractor paid for quantity of work completed each month

■ Risk of quantities both positive and negative borne by Client

■ Financial risk of rates borne by the Contractor

■ Works should be well defined at tender to allow a BQ to be produced

■ Changes in quantity can be easily accommodated but Scope should be subject to

■ Greater post contract administration

Turner & Townsend MTRC NEC4 Level 2 – Module 1 18

Target contract with Activity Schedule (C) / Bill of Quantities (D)

Turner & Townsend MTRC NEC4 Level 2 – Module 1 19

Turner & Townsend MTRC NEC4 Level 2 – Module 1 20

Cost Reimbursable contract

■ Limited / no project definition required at tender stage

■ Immediate / earlier start on site

■ Contractor paid on a cost reimbursable (Defined Cost plus Fee) basis

■ Limited financial risk borne by the Contractor (Disallowed Costs)

■ Full flexibility available to the Client

■ Potential for claims / disputes reduced

■ Less cost certainty for the Client

Turner & Townsend MTRC NEC4 Level 2 – Module 1 21