Achieving benefits of partnering with NEC3
Luc Bauwmans suggests how the NEC3 could help navigate the downturn
Luc Bauwmans suggests how the NEC3 family of contracts could help navigate the downturn.
Partnering in construction is still the subject of much debate. The simplest form of partnering occurs when two parties to a contract have aligned some of their objectives for a project. Lately more complex forms have emerged such as multi-party arrangements of single contracts on a project.
Besides public-private partnerships (PPP), most partnering approaches to construction contracting have been tentative, and at best, of a tactical nature.
In March 2009 Reuters Dubai reported that in UAE, US $263 billion of real estate projects had been postponed.
Many client organisations have since reissued invitations to bid; contriving more favourable offers from contractors who in turn, continue to squeeze down the supply chain.
About partnering contracts
Partnering between a supplier and a customer has always appealed, taking on many forms.
In a supply driven market the main beneficiary of a partnering arrangement is generally the client.
Here partnering aims to curb uncontrolled price hikes from over-busy, finicky contractors and suppliers, and ensure preference of supply.
But unless a long-term payback is clear, contractors won’t settle for limiting their profit potential over a promise for continued work.
But in a demand driven market the clients will not see immediate benefits from partnering, as it is seen to blunt competitive pricing. But contractors will prefer this for this exact reason.
A milestone on the road to partnering was the report “Constructing the Team” by Sir Michael Latham in the UK in 1994.
Sir Latham’s report made some 30 recommendations towards a well designed partnering approach along the whole supply chain. It also recommended the use of the new engineering contract (NEC) as a preferred vehicle for construction projects in the UK.
It contained suggested improvements to NEC, which the NEC panel took to heart, producing the NEC 2nd edition by 1995. It included the engineering and construction contract (ECC), the engineering and construction short contract (ECSC), the engineering and construction subcontract (ECS), the professional services contract (PSC) and the adjudicator contract (AC).
Later, a multi-partner option, now known as secondary option X12 was added that, if selected, created a contractual obligation between partners to achieve client objectives, coupled with shared and interdependent incentives, managed by a core group.
But, the NEC2 remained mostly tactical in nature and partnering was focused on multiple suppliers of the same project. The release of NEC3 in 2005 hushed many a criticism of NEC. The right grouping of NEC3 documents bundled together with the X12 could be used to structure a strategic multi-partnering setup, for cradle-to-grave management of a facility.
In order to grasp the power of such a tool as a behaviour driver, simply imagine a design consultant, a construction contractor and a term services contractor sharing incentives on a chemical process plant project.
Framework contracting is still in its infancy stages, pioneered the last 10 or 15 years mostly by public authorities in Europe seeking quick access to suppliers.
A framework contract is an umbrella agreement that lays down the rules of co-operation but does not scope the individual work packages required under it.
That is done by separate single contracts issued under the framework. A degree of competitiveness is maintained, as one or more preselected suppliers can bid, under specified conditions, for supply of an item of work.
The NEC3 framework contract can be used for mega projects (related projects) or portfolios of projects (unrelated). It may cover consulting, construction or other work, through the use of various other appropriate NEC3 stand-alone forms.
Who is Luc Bauwmans?
Luc Bauwmans is the vice president for Sukad. He has a Masters degree in Architecture from Belgium and has practiced and lectured architecture and interior design in South Africa. He has also managed projects in the construction, energy, commercial and public sectors.
Since 1999 he researches project management related topics and teaches a multitude of clients in Africa, UK and Middle East.