Webinar - NEC4 DBO Contract: a whole-life delivery solution webinar 20 th September 2017 Q&A session Here are the questions that were not answered during the webinar session. You can find the full recording here: www.neccontract.com/dbowebinar Q: The DBO contract feels like this is setting out to be a standard form in a DBFO scenario, but the 'F' is side stepped. Great idea, given how long it takes lawyers to negotiate bespoke DBFO contract. Am I right - how would the 'F' fit in, or is that not the intention? A: That is not really the intention. In principle, it would work for a funding scenario but these tend to be bespoke because so much revolves on the funding regime. What happens if the Client needs to default? Or if the Contractor is earning too much/too little. We are straying into PFI territory where the legal world would be very involved Q: Can the Performance Table work both ways, so that the Client must meet performance requirements, to allow the Contractor to maintain the cost and programme of the works? A: We don't see why not. We have seen KPIs where if the Client failed to achieve those relating to their organisation, the other parties were not held accountable for failure to achieve their KPIs. But it would need very careful writing. However, if the Client fails to meet requirements in the accepted programme this would be a compensation event and adjust the performance table anyway. Q: Can you add in a new Performance criteria e.g. contract is for a bottling plant where Performance Table has a target for so many bottles? What if a new product line is introduced which involves kegs but there is no performance criteria for kegs? A: The Performance Table cannot just be changed by the Client - it would need the agreement of the Contractor. Q: Can you clarify if the Service Manager is a Client or a Contractor employee? A: A Client "agent" who may be an employee or a third party engaged for the task. Q: Does the contract allow for novation of a designer to the Contractor? A: The contract itself doesn't; it could always be done. But this is more than just a D&B with original concept designer novated. The Contractor operates the project so has a great say in who is involved. The Contractor also accepts all design liability - the novation agreements will need care! Q: Does the contract exclude the Contractor being asked to finance some of the capital elements through part or all of the Service Period? A: See question 1. It doesn't exclude; it doesn't include it and is not predicated on it. NEC 1
Q: Does the contract specify how the handback standard is assessed? A: No - the Scope would need to do that with the Performance Table. Q: Handback - are there any default provisions for failure to meet requirements or process to assess requirements for work to get there? A: No, there are not. The user guide helps the thinking around this area though. Q: Has this concept evolved from trunk road network maintenance type contracts? A: We don't think so but DBO is a well-known concept - this DBO has developed the standard approach in that the Works can be at any time, not just at the beginning. Trunk road operations was always an example quoted. Q: If the Operation happens before the D&B activities, what is the provision for the Contractor to accept the existing assets condition before entering into the contract? A: It would be part of the Scope, part of the tendering position - just like any maintenance contract when the Contractor offers a "price per property" type of arrangement and accepts the risk. Q: How does the contract deal with Defects that arise during a defects liability period as a result of the "D" or "B" phase of the contract, which Defects need to be corrected during the "O" part of the DBO contract? Is an interface-type provision contained in the contract? A: There is no defects liability period in the D&B section. So no interface provision. It uses the TSC approach to Defects. So beware the situation if the D&B is very close the end of the O phase - this would need extra drafting to extend the defect liability. Q: How does the DBO deal with subcontracting? A: Just like every other ECC/TSC contract. Q: How will the incentive/damages mechanism be used for different options for the DBO? A: That remains to be seen. It is the same approach - clearly on an Option C type approach in part B of the Price List this has a different incentive than a price based approach in part A of the Price List. Q: How would this contract work within a joint venture? A: We think you might want an Alliance contract here! We don't know the answer easily - if the principles of DBO contract work through the joint venture and the risks and responsibilities are clearly laid out then this should work. Q: Imagine we draft the contact to require the Contractor to provide xxx liters/day of water per head of population in the service area and identify the predicted population growth. If it grows faster than predicted, thus requiring the Contractor to invest in additional D&B. Is there a mechanism in the contract to adjust the remuneration to take account of the additional capital expenditure? A: Yes - the normal compensation event process. The Scope would be changed. NEC 2
Q: Is the notification of compensation event procedure similar to the ECC forms? (e.g. time bars, deemed acceptance etc.) A: Yes it is. Q: Is there a danger of quantities in the priced part for Works? It is unlikely the Client will want to take quantity risk. A: The part A of the Price List has lump sums and quantity related sums. What goes into which is up to the Client. The Price List dictates the work required and vice versa. So if part of the operation phase is quantity related, providing emergency helicopter support on the rail network at x per call-out then it would be quantity related. Q: Is there any specific drafting to deal with the getting and maintaining of third party consents that might be required to provide service? A: No. Q: Will this not pose a real challenge in terms of main roles, if the contract is for 20-25 years? During this period, there will be lot of movements of the staff across the organisations A: All long-term contracts have problems with people movements. This emphasis need to have documented processes, good training, regular updates, good management. 25 year contracts just make it more so. Additionally there are changes in law (included), inflation (included), and just the nature of the change of Scope requirements (Compensation events) or simple negotiation by the Parties (ignoring EU compliance). Q: It is more often than ever the condition of the existing asset is not well defined upfront. How best is ensure the Operational requirements always meet the Scope throughout the contract? A: The worse the asset is defined the more risk the Client is accepting for the performance failures - inevitably. So does the Contractor do an asset survey, agree changes and fix new prices? Just like any FM type contract? There's no difference from a contract where the ground condition surveys and information is worthless. I'm sure Clients will try to pass risk to the DBO contractor, and pay for the privilege. This is not a contract for the faint hearted. Q: On some complex projects there is advantage in having the design before build. Can the DB by separated to a D then a B when the client has proceeded through the early RIBA stages? More involvement of the trades in the design is becoming recognised as a benefit. Can the design be advanced separate to build A: If you are doing this why use a DBO? Build the asset and then get someone to operate it on a TSC. Q: In Part B, why would the Contractor do the work based on the cost and not on price? What does the contractor get? A: Like any NEC Option strategy decision, the choice of price or cost based work depends on risk, uncertainty, approach adopted by Client, desire to know true costs, etc. On a cost based contract the contractors may get lower returns, but they take lower risk. NEC 3
Q: Where is the 'amount due' set out? A: In normal clause 50.3. Q: In the Price List Part A and B - can A and B both include Works and Service? A: Yes - just watch that the definition is clear enough to avoid ambiguity. Q: Regarding the termination by the Client clause, does that mean the Client cannot terminate the contract at all or that he cannot do it under certain circumstances? A: Termination by the Client, X11, which is not in the DBO, is termination by the Client for a reason which is not in the contract - the old "for any (other) reason". It means that there is no contractual remedy for termination by a breach of contract not in clause 92. The Client can always terminate for anything - it would be breach and the legal process would take over. X11 offers a contractual remedy of loss of profit - and this is too broad brush for this contract. Q: Ross used the word 'target'. Do we have share profile as ECC Option C or is it just mix of priced and reimbursable? A: We have the share profile but it is put in the Performance Table. Clause 53.4 in core sets the groundrules, the Performance Table states how shares are allocated. Could use any allocation you wish. Q: Regarding termination, surely a Z on 'substantially fail to comply' (91.2) to like to KPIs etc in Performance Table? A: It won't be in the Z clause, it will be in Performance Table/Operational Requirements. What I want, how I measure it, what I do if I don't get it etc. Q: Users need to be aware of the risk of putting a specific design life requirement in the Scope A: Yes. But that is not a DBO contract problem - it is a problem of defining the specification and scope in any contract. The DBOC will often be performance output specifications, so the risk may be higher. Q: What are the key benefits of this form when compared to use a combination of multiple forms eg ECC and TSC? A: It is one integrated approach which is available for use when the Client wants to pass more responsibility to the Contractor and give more operational rather than just maintenance responsibility. The interface between using this and ECC+TSC will be blurred - it depends on circumstances, experience of Client, Contractor attitude to risk and knowledge of the sector, etc. Q: What happens if the Contractor becomes bankrupt and disappears? A: Bankruptcy is a termination event. The DBO holds all the normal bonds and guarantees. Think in advance about this. Q: What is the impact on a possible escalation in life cycle costings during the operation phase? A: Depends if it changes the Scope. Who holds the risk, who pays for the consequences. NEC 4
Q: Who do we contact in relation to the consultation phase of the collaboration agreement? A: If you mean the new consultative Alliance contract [please go to the NEC website - https://www.neccontract.com/nec4-products/nec4-contracts/nec4-alliance-contract. Q: Who will assess the condition of the assets/ property? A: Depends on what the contract and tender say. At handback we would expect the Service Manager for the Client to ensure the condition was as stated in the Scope. Q: Why is there no termination by the Client, especially if performance targets are not being reached? A: There is. There are many termination reasons including the Contractor substantially failing to provide its obligations. See the answer to 26 above which relates to termination by the Client for a reason not in the contract. Answers by Ross Hayes, NEC4 Drafter, and Robert Gerrard, NEC4 drafter and NEC Users Group Secretary. NEC 5