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The NEC4 Design Build and Operate Contract: a whole-life delivery solution
Ross Hayes and Robert Gerrard
Improvement through collaboration
Speakers
©NEC2017 The NEC4 DBO Contract 2
Presenters:
Robert Gerrard NEC Users’ Group Secretary and NEC4 drafter
Ross Hayes, Consultant and Project Manager for Anthony Collins Solicitors LLP and NEC4 drafter
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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
©NEC2017 The NEC4 DBO Contract
What is the new contract?
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• 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”)
©NEC2017 The NEC4 DBO Contract
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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 ©NEC2017 The NEC4 DBO Contract
User guides
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• 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
©NEC2017 The NEC4 DBO Contract
Key documents
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• 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
©NEC2017 The NEC4 DBO Contract
DBO contract people
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• 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
©NEC2017 The NEC4 DBO Contract
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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 ©NEC2017 The NEC4 DBO Contract
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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
©NEC2017 The NEC4 DBO Contract
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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?
©NEC2017 The NEC4 DBO Contract
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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)
©NEC2017 The NEC4 DBO Contract
Price List
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• 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.”
©NEC2017 The NEC4 DBO Contract
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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))
©NEC2017 The NEC4 DBO Contract
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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
©NEC2017 The NEC4 DBO Contract
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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
©NEC2017 The NEC4 DBO Contract
• 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
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Performance Table
©NEC2017 The NEC4 DBO Contract
Upcoming NEC4 webinar NEC4 Service Contracts: how have they changed? A discussion on changes that are special to the service contracts
Ross Hayes NEC4 drafter
Ben Walker NEC4 drafter
15 November 2017 | 13:00 GMT
neccontract.com/NEC4serviceswebinar
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
neccontract.com/events
Birmingham | 31 October 2017
Manchester | 01 November 2017
London | 17 January 2018
Cardiff | 07 February 2018
Manchester | 23 February 2018
Glasgow | 28 February 2018
©NEC2017 The NEC4 DBO Contract
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 ©NEC2017 The NEC4 DBO Contract
Contact us +44 (0)20 7665 2446
One Great George Street, London SW1P 3AA
neccontract.com
Improvement through collaboration