The NEC4 Design Build and Operate Contract: a whole-life delivery solution
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1 Improvement through collaboration The NEC4 Design Build and Operate Contract: a whole-life delivery solution Ross Hayes and Robert Gerrard 1
2 Speakers Presenters: Ross Hayes, Consultant and Project Manager for Anthony Collins Solicitors LLP and NEC4 drafter Robert Gerrard NEC Users Group Secretary and NEC4 drafter 2
3 What we will cover What is the new contract? Where would you use it? How the DBO contract fits in the NEC suite Underlying principles Roles of the Parties The contract strategy The pricing and performance mechanism 3
4 What is the new contract? The DBO contract is an operational contract where the Contractor is providing a service (not just a project) over a period of time (the Service Period ) During the Service Period there is a need to create, replace or upgrade a significant part of the asset (the Works ) Design and build of the Works can occur at any time during the Service Period The scope of service is generally a defined performance output (in the Scope and Operational Requirements ) and includes a risk/reward relationship (in the Performance Table ) 4
5 Where would you use the DBO contract? When a single point responsibility for both aspects of construction and operation is required For the traditional approach of design and build a new asset, and then operate it for the Client for a period of time For the operation of a network, for example road or water supply, where a new asset is needed or part of the asset needs creating or replacing during the operational life Where the timing of the major build may be at the discretion of the Contractor if that suits the overall objectives of the Client No constraint on the type of project/asset 5
6 User guides For all contracts Vol 1 Establishing a procurement and contract strategy Vol 3 Selecting a supplier For the DBO contract Vol 2 Preparing a design build operate contract Vol 4 Managing a design build operate contract Flow charts for the DBO contract - electronic only 6
7 Key documents Key documents are the Scope and Price List the Operational Requirements and Performance Table The Operational Requirements form part of the Scope The Performance Table is used to incentivise the Contractor financially, to achieve or better the targets set for the Operational Requirements Discuss these in more detail later 7
8 DBO contract people People in contract, defined by their role Client Contractor Service Manager Senior Representatives Adjudicator Others (eg statutory authorities) These two are the Parties to the contract 8
9 The contract strategy pricing mechanism No main pricing Options to select all are available in the core clauses Contract has ability to mix cost and price based strategy in the Price List Achieved through the definition of PSPD (cl 11.2(20)) and the work defined in the Price List parts A (price based) and B (cost based) There is then an option to share the difference between the Defined Cost and total of the Prices for work done against part B of the Price List (cl 53.4). This target price approach requires a share mechanism in the Performance Table 9
10 The contract strategy secondary Options Limited set of Options X3, X4, X8, X9, X10, X13, X14, X18, X23 Of those not used Options X1 and X2 are now in core clauses effects of ECC/TSC X6, 7, 16, 17, 20 could be included in Performance Table and Operational Requirements, as can an Option C type target share approach no reduction in design liability through X15, but financial risk can be limited through X18. Other parts of X15 (period for retention, etc) now in core clauses no termination by the Client, X11 10
11 And the complex part.. Defining the Price List and assessing the total of the Prices What are the Performance Table and Operational Requirements, and what goes into them? What does the Client say about the condition at handback, at the end of the Service Period, and where is it stated? 11
12 Handback At the end of the Service Period, the Contractor returns to the Client the Affected Property in the condition stated in the Scope (clause 30.3) 12
13 Price List Explained by the definition of PSPD The Price for Service Provided to Date is for the work identified in part A of the Price List, the total of the Prices in the Price List for each completed lump sum item and where a quantity is stated for an item in the Price List, an amount calculated by multiplying the quantity which the Contractor has completed by the rate and for the work identified in part B of the Price List, the total Defined Cost which the Service Manager forecasts will have been paid by the Contractor before the next assessment date plus the Fee. 13
14 Performance Table & Operational Requirements An Operational Requirement is an aspect of performance by the Contractor which forms part of the Scope and for which a performance target is stated (clause 11.2(11)) The Performance Table includes the targets for performance stated for the Operational Requirements and sets out the adjustment to payment if a measured performance is higher or lower than the target. The Performance Table is the performance table unless later changed in accordance with the contract (clause 11.2(15)) 14
15 Operational Requirements The Operational Requirements are what the Client wants Examples could be availability of asset/facility capability of the asset/facility They can be changed by the Service Manager because they are in the Scope 15
16 Performance Table The Performance Table states how the Contractor will be rewarded for achieving, bettering, or failing to achieve the objectives It may include elements used on Options in other contracts key performance indicators, and benefits if achieved poor performance damages if standards are not achieved delay damages if the Works are not complete on time, or a bonus if they are delivered early a pain/gain share approach relating to the items of work in part B of the Price List It can be changed through the compensation event assessment process 16
17 Performance Table It provides the opportunity to provide a comprehensive and flexible approach to the performance aspects of the DBO contract It needs great care in developing it to achieve the required outputs provide the appropriate incentives avoid ambiguity/contradiction of incentive and reward get the balance right 17
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19 Upcoming NEC4 webinar NEC4 Service Contracts: how have they changed? A discussion on changes that are special to the service contracts 15 November :00 GMT Ross Hayes NEC4 drafter Ben Walker NEC4 drafter neccontract.com/nec4serviceswebinar
20 NEC Users Group workshops in the UK Morning session NEC4 ECC: Key changes affecting the management of the contract Afternoon session NEC4: Evolution of the Service Contracts Birmingham 31 October 2017 Manchester 01 November 2017 London 17 January 2018 Cardiff 07 February 2018 Manchester 23 February 2018 Glasgow 28 February 2018 neccontract.com/events
21 NEC4 online courses The first batch of NEC4 online courses is now available NEC4: Introduction to NEC NEC3 and NEC4 compared ECC NEC3 and NEC4 compared Service Contracts neccontract.com/nec4training
22 Improvement through collaboration Contact us +44 (0) One Great George Street, London SW1P 3AA neccontract.com
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