The NEC3 forms of contract are extensively used in a number of key sectors. The Engineering and Construction Contract (ECC) has a number of main options to cater for different pricing strategies. One of the most common is Option A (Priced Contract with Activity Schedule). The ‘Activity Schedule’ needs to be carefully prepared in order to work as intended. A failure to do so can result in adverse commercial consequences. This article explores some of the key pitfalls for the unwary.
- Completed ‘activities’ only – Contractors are only entitled to be paid for completed activities. In theory, the entirety of the works could be expressed as one composite activity. If this were the case, the Contractor would only be entitled to claim payment after completion of the whole of the works. From a contractor's perspective it is therefore important to ensure that the Activity Schedule breaks down the works into an appropriate level of detail so that the contractor’s cash flow is preserved throughout the course of the works. This can be easily overlooked if the invitation to tender contains a template Activity Schedule to be completed by the Contractor containing large composite activities that may take a number of months to complete.
- Unfixed materials – Under Option A there is no automatic right for contractors to claim the value of unfixed materials on site whether or not they are delivered in a timely manner. A contractor will only be entitled to be paid for unfixed materials if the Activity Schedule contains specific activities for their delivery.
- Design services – Contractors should also not overlook design services when negotiating/preparing the Activity Schedule. A contractor should look to apportion the price for the design services against specific deliverables/activities within the Activity Schedule.
- Provisional sums – The NEC3 also does not cater for provisional sums. If an element of the works is incapable of being accurately specified at the outset then it should be described in as much detail as possible in the technical documentation (ie the Works Information) together with appropriate assumptions. The Activity Schedule should contain the activities relating to such work with lump sum prices against each. If the scope of work or the assumptions change they may be addressed by way of an instruction changing the Works Information and the price and time for completion adjusted through the compensation event mechanism.
In conclusion, the form of the Activity Schedule can have significant commercial implications for both employer and contractor and therefore it is essential to understand how the Activity Schedule is intended to operate and to ensure it is carefully prepared before the contract is entered into.