Contractors employed to carry out design-and-build contracts under the NEC3 Engineering and Construction Contract (ECC) often subcontract some of their design obligations to consultants under the NEC3 Professional Services Contract (PSC) and subcontractors under the NEC3 Engineering and Construction Subcontract (ECS).
When it comes to submission of designs, both the ECC and ECS have well-defined processes and rules. However, the PSC has nothing other than a general obligation to ‘provide the services’ in accordance with the scope. This article highlights how this should be addressed in the PSC scope.
Most of the principles are applicable whether or not the consultant’s employer is a contractor carrying out design. It should therefore be of use to consultants, contractors and employers generally.
Defining design in PSC scope
The ECC covers contractor’s design in clause 21.
‘21.1 The Contractor designs the parts of the works which the Works Information states he is to design.
21.2 The Contractor submits the particulars of his design as the Works Information requires to the Project Manager for acceptance. A reason for not accepting the Contractor’s design is that it does not comply with either the Works Information or the applicable law.
The Contractor does not proceed with the relevant work until the Project Manager has accepted his design
21.3 The Contractor may submit his design for acceptance in parts if the design of each part can be assessed fully.’
So, the specifics of what the ECC contractor is to design, and which ‘particulars’ of its postaward design are to be submitted to the ECC project manager for acceptance, should be each set out in detail in the ECC works information.
The contractor may however want to pass some or all of its design obligations to one or more consultants using the PSC. The required deliverables under the PSC need to be set out in the scope. These may well include some or all of the specified ‘particulars’ of the contractor’s design that it has to submit to the project manager under its ECC contract.
The contractor may also want other, often more detailed design for its own purposes. For example, it may have to submit only structural calculations to the project manager, but it may also need reinforcement drawings and schedules from the consultant. The scope should therefore be very clear on what the consultant is required to submit (designs and any other deliverables).
The scope should also be clear on which of those submissions have to be submitted for acceptance rather than just for information.
Setting submission times in PSC
In the ECC, the employer may set completiondates for the whole of the works and for sections of the works. It is also possible for the contractor to be given specific dates for the submission of certain parts of its design.
Normally the contractor will develop its design and construction programme to show the employer how it will achieve overall completion by the required date. The programme should include its planned dates for submission of particulars of design and the period for the project manager’s review and acceptance. The contractor then has to set up its PSC subcontracts for its designers to get the deliverables from them in good time to meet its overall design and construction programme.
In the PSC (like the ECC) there are different ways of setting time requirements for the submission of deliverables. The scope could simply require each deliverable within a stated number of weeks of the starting date. This might be stated as, ‘subject to compensation events’.
A problem with this option is that there is no clear remedy for the consultant not achieving this date. In theory the employer would have to sue the consultant for breach of contract if a consultant’s lateness caused the employer problems– as it probably will. Also, there is no clear mechanism in the contract to move back the required date as a result of compensation events.
Another way is for the contractor to define deliverables as ‘sections’ under the PSC (using option X5 on sectional completion). This would need the required completion date for each section and the planned completion for each section to be shown on the consultant’s programme. That in turn would give clarity on how the sectional completion date might be adjusted for compensation events. Using X5 gives the contractor the option of including option X7 on delay damages to set an amount payable per day that the section is later than required and/or indeed option X6 on bonus for early completion. However, many consultants have objections to the use of option X5 and X7 taken together, particularly if applied to a series of deliverables.
Alternatively, ECC and PSC both include the concept of ‘key dates’. These are included in the core clauses (not a secondary option) but their use is optional. In the contract data part one the employer can set out conditions to be met by key dates. Those conditions could be the submission of certain deliverables. Like sections, the good thing about this option is that it means the required key date for each condition and the planned date for achieving the condition would have to be shown on the consultant’s adjusted as appropriate by compensation events (clause 63.3).
A problem – and it is a big one for consultants – is in PSC clause 23.3: ‘23.3 If the Employer decides that the work does not meet the Condition stated for a Key Date by the date stated and, as a result, the Employer incurs additional cost either in carrying out work or by paying an additional amount to Others in carrying out work on the same project, the additional cost the Employer has paid or will incur is paid by the Consultant.’
This effectively leaves the consultant exposed to ‘unliquidated’ damages for the knock-on consequences to its employer, challengeable only through a dispute, which would go to the adjudicator.
Setting response time in PSC
The PSC scope should also set out the period within which the employer will respond to the consultant’s submissions. If not stated, the period will be the default period for reply set in the contract data.
If the employer under the PSC is a contractor passing the submissions along the chain and has to wait, for example, 2 weeks for a reply from the ECC project manager, it may want to give itself more than 2 weeks to receive and review the document, submit the document to the project manager, get a reply from the project manager and respond to the consultant. Of course, the longer the period, the longer will be the overall time required to carry out the design.
If the employer rejects a submission for a reason not stated in the contract, it will be a compensation event. It would seem logical for the scope to include a statement similar to clause 21.2 in the ECC, which states a reason for not accepting the submission is that it does not comply with either the scope or the applicable law. Of course, if a main contractor is using the PSC as a subcontract, the relevant requirements in its works information will need to be passed on into the PSC scope, In ECC (clause 21.2) the contractor does not proceed with the relevant work until the project manager has accepted its design. The scope in the PSC should be clear on whether the consultant is required or allowed to continue work on subsequent more detailed deliverables in advance of a submission being accepted.
It may not be essential if the deliverables are well defined, but it would seem sensible, to reflect ECC clause 21.3, for the scope to include: ‘The consultant may submit deliverables for acceptance in parts if each part can be assessed fully.’
The author considers the above represents good practice in drafting the scope in a PSC contract to cover the requirements for submissions, including designs. Clarity should be to the benefit of both parties. However, the drafter should consider the wider consequences on the relationship, especially between a design-and-build contractor and its consultant.
A micro-managed scope with dates for everything and especially with any form of damage for non-compliance with required dates will act against the collaborative behaviours that the NEC itself is designed to engender. The parties may wish to consider this in conjunction with a high-level commercial arrangement that really incentivises collaboration.
An example is where the consultant is employed under a reimbursable payment option (option E) and secondary option X20 is used to incentivise the consultant to help its employer meet the latter’s ultimate objectives. The most obvious example is where the consultant is given a share of any savings made by its contractor employer under the contractor’s main target contract.
In summary, it is not uncommon for delays to occur during the design process under a design and build contract. It is therefore in the interest of the contractor and its designer to be clear about the process. If the designer is employed under the PSC, this process needs to be clearly set out in the scope and, if the employer is a design-and-build contractor, it should reflect the constraints on the design process in the contractor’s main contractor.