The NEC Panel has published an additional clause for use with the NEC3 Engineering and Construction Contract to allow for procurement of a contractor on an early contractor involvement ('ECI') basis.
What is ECI and how does it compare to more traditional procurement routes?
The 'traditional' construction model involves the employer engaging a professional team to design the works and then oversee the project. The employer subsequently engages a contractor to build the works in accordance with the designs provided. The problem with this 'traditional' model is that the design team and the contractor often have conflicting objectives, which can lead to disputes between the parties.
Many employers seek to minimise this risk by adopting alternative procurement models such as design & build or 'turnkey', in these models the contractor does both the design and construction of the works. The main trade-off with this procurement route is that some employers consider they lose an element of control, with the contractor effectively taking over the project.
ECI attempts to take the best of both of these models; optimising risk management/ allocation, price and control. In essence, it seeks to exploit the contractor's specialist knowledge of construction processes to benefit the design process. By being involved at an earlier stage of the project the contractor can contribute to the design development and planning process which crucially allows it to add value in areas such as buildability, logistics, and programming.
When can you use ECI?
ECI can be used either where the contractor is to be engaged on a design & build basis, or where the contractor is to assist the employer/ the employer's design team to develop the design.
What are the key features of NEC3 ECI clause?
The key features of the NEC3 ECI:
payment on a cost reimbursable basis for work done during stage 1, up to an agreed cap;
submission of design details and pricing information at the end of stage 1, leading to agreement of the Prices (lump sum or target cost) for the construction phase;
once the Prices have been agreed, a notice is then issued by the employer to proceed to stage 2. Crucially the contract contains a right for the employer to appoint a replacement contractor, if agreement cannot be reached on the Prices or the contractor’s performance during stage 1 has been unsatisfactory;
there is an optional provision which allows the employer to incentivise the contractor to achieve savings in the overall cost of delivering the project. This will include external costs (land/ consultancy fees etc.) as well as construction costs; and
ancillary provisions covering use of the contractor’s designs, key people etc.
Further guidance on the use of the ECI clause has just been released by NEC in the form of a 'how to' guide.
On a side note, I do have a few concerns with the NEC3 ECI clause, for example:
The NEC3 ECI clause does not expressly terminate (or provide the ability to terminate) the contactor's employment in a situation where the Employer takes the decision to not proceed with stage 2. Instead stating “the work required in Stage Two is removed from the Works Information. This instruction is not a compensation event”;
It can only be used with Options C & E;
It places substantial emphasis on the supporting Works Information; this will therefore need very careful drafting.
Some simple amendments and detailing can alleviate these concerns.
Risks/benefits of ECI model generally?
The use of a two stage procurement route carries inherent risks, especially if the employer fails to rigorously manage the process. The most common issue is that the contractor becomes 'embedded' in the project.
Therefore, irrespective of the contractual ability to remove and replace the contractor, in practice it will be near impossible to remove the contractor from the project. This creates difficulties if the contractor provides a bid price higher than budget.
The main benefit of the ECI model is that the contractor becomes involved with the project at a very early stage and thus this allows the most value to be extracted. Further the ECI model reduces the cost of tendering as only one design process is undertaken and it enables risks to be identified earlier allowing these to be mitigated and/or properly allocated (this sits well with the new CDM approach found in CDM 2015).
The employer also retains more control (than compared to a design & build process) through collaborative working with the contractor and its consultants at stage 1. Further control being maintained through the discretion as to whether to proceed to stage 2.
There is clearly renewed interest and use of the ECI model (High Speed Two is a recent high profile example). This is understandable given it combines collaborative working with greater control over design outcomes and price certainty.