The NEC suite of contracts has become the contract of choice for government agencies and authorities but is it a contract of our time? Brian Eagles discusses and reviews.

THE cornerstone of the NEC form of contract is Programme Evaluation and Review Technique often referred to PERT analysis. The backbone of PERT is the activity network that we now associated with critical path analysis, albeit that technique is only a part of the PERT analysis. PERT requires a network that models the interdependence of activities within a project, the result of that modelling is often represented as a Gantt or bar chart. The network and bar chart are often confused as being one and the same but this is incorrect. The network is an interactive model of the work to be undertaken and it is this property that has been enshrined within the NEC contract (and is absent from many of the other forms of contract such as JCT, ICE and FIDIC).

Briefly, NEC requires that the programme is:

• a critical path network.
• updated monthly with progress achieved.
• used in determining the actions following a compensation event.

Producing the Network
Sophisticated planning software is used to produce a bar chart. Interdependencies are included to hold the activities in the time frame that ‘looks right’ but this is far from the interactive network required by the NEC contract. The network needs to be mathematical model of the work undertaken and must be capable of reacting realistically to the input of the status of the work actually being undertaken and the impact of foreseen delays to give a realistic projected completion date.

The requirements for an effective network include:

• all the work of the project.
• sufficient detail to allow the tracking of the work.
• only one start point
• only one end point, although more finishes may be included for projects with sectional completion dates (albeit, in classical terms, each section would be a separate project).
• allowance for risk and realistic activity durations.
• a hierarchal structure to allow the output to be viewed at various levels of detail. Using these rules will result in a network that is suitable for use under the NEC.

Progress Updating
The second requirement of the NEC is the project being updated with the actual progress achieved each month. The measurement of progress is sometimes subjective and this may cause difficulties in getting the programme accepted by the Engineer at the end of each review period, as required by the NEC.

In determining the best strategy for updating the programme, the durations of each activity should be kept relatively short to allow the majority of the activities in the network to be either finished or not started since these are the easiest states to determine. Having limited the number of activities which need interpretation a mechanism for calculation of progress should be agreed with the Engineer. It is in both parties interest to keep disagreement and debate to a minimum considering the time allowed to complete and agree each update.

The upside of to this approach is that payment is linked to completion of activities shown on the activity schedule under most variants of the NEC, therefore, activities with reasonably short durations will assist with cash flow.

The downside to this approach is that the network is likely to become very detailed. Clearly, a balance needs to be struck and that balance is unlikely to be the same for different clients. Very detailed networks are also difficult to interpret and can and do cause some managers to shy away from using the programme to manage the works, preferring to leave the planner to do his thing while the manager gets on with the ‘real’ work.
To avoid this situation it is imperative to structure the output from the network so that each member of the management team can appreciate the programme at a level that is relevant to his own needs.

Compensation Events
Events that effect either the time or cost to completion are termed compensation events under the NEC contract. When an event occurs the parties have a duty to agree the implications of the event on the project and possible strategies to be employed in resolving the event must be discussed. The project manager must then decide on the strategy to be adopted in resolving the problem.

The programme is a key element in demonstrating the impact of the events on the works and what strategies could be adopted to lessen the effects. Once a decision has been made, that programme becomes the agreed programme for the remaining works and is binding.

The Verdict
To return to my initial question “Is the NEC a contract of our time?” Whilst computing and software tools have advanced almost exponentially, the skills and experience needed to construct and maintain the required networks are harder to find. The challenge that the NEC presents to industry is to produce and retain those planners with the practical knowledge of the particular industry they work in and to train them in the highly specialised skills required to build the networks required by the NEC. In addition, the management team also needs to be mindful of the level of support the planning function needs in order to succeed under this form of contract. Progress is being made. We begin to see individuals with the skills and experience required by the NEC emerging. If the use of the NEC becomes more widespread, the industry needs to increase the number of individuals with the appropriate skills. Only then will the NEC become the contract of our time.

Brian Eagles is an Associate Directorand is based at Trett Consulting’sManchester office