The NEC4 Brief
Hosted by Ben and Glenn, The NEC4 Brief is a monthly podcast that unpacks the ins and outs of the NEC4 contract, one clause, one issue, one real world example at a time.
Each episode takes a practical look at how the contract actually works on site, not just on paper. From compensation events and early warnings to risk allocation and programme management, Ben and Glenn translate legal jargon into everyday lessons for contractors, project managers and quantity surveyors.
It’s straight talking, experience led insight from two practitioners who’ve seen how NEC4 plays out in the real world: the good, the bad and the “that’s not what the contract says.
The NEC4 Brief
How Contractor Proposals Cut Cost Without Killing Incentives
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
We dig into how NEC4 turns value engineering from a vague ambition into a structured process that can reward innovation without undermining price certainty. We compare clause 16 contractor’s proposals with secondary option X21, then pinpoint the contract data choices that decide whether good ideas ever get raised.
• what value engineering means in NEC4 and why scope quality matters
• clause 16.1 workflow from proposal to project manager decision
• documenting ideas early so ownership is clear and auditable
• design liability staying where it started and when X15 matters
• Options A and B sharing savings through 63.12 and the value engineering percentage
• Options C and D sharing savings through 63.13 and pain share gain share mechanics
• X21 proposals for whole life cost reduction and why they are not compensation events
• the clause 21 acceptance misunderstanding and why it is not a scope change route
• incentives, caps and bandings that can accidentally kill innovation
So if you're seeing it after the event, please do get in touch on LinkedIn, drop us some questions, particularly be interested in anyone who's used X21 and and what your experiences have been, because uh I'm very inexperienced and it'll be really interesting to see how how that's been used in practice.
View the webinar: https://www.gatherinsights.com/en/webinars
Join the LinkedIn Group: https://www.linkedin.com/groups/2893228/
Welcome And Webinar Purpose
SPEAKER_02Good afternoon, everyone. Welcome to this afternoon's webinar with myself, Glenn Hyde from GMH Planning, and you'll very shortly meet Ben Walker from Gather and David Allen from Seeker. This is our tenth webinar. We've made it to double figures, guys. So we've not been taken off air yet. So we must be doing something right. So yeah, our tenth webinar in our series. And obviously, that means there's nine other webinars you can catch up on in case you've missed them, where have you been? But today we're focusing on something a little bit more detailed. So we're diving in to contractors' value engineering proposals. So how potentially ideas could be offered up and how they may or may not change prices and things like that. That's what we're going to explore. So what's the reason that a contractor might be proposing some of these things? What's in it for both parties? That's what we're going to explore. How does NEC, particularly NEC4, allow for these mechanisms? And there are some improvements and enhancements we're going to find out today in NEC4 that we didn't see in NEC3. NEC does a lot of this, just every time the contracts are evolving and they are there obviously correcting certain things, but also adding improvements and enhancements. And today's features are some of those improvements that have been added in to NEC4. David, come chat to us about Seeker.
SPEAKER_00Thank you, Glenn. Thank you. Yeah. Hi, I'm David Allen, the Executive Director for Seeker Southern, and I look forward to hearing more about what is probably an underutilised part of the NEC4, which is slightly counterintuitive in the world where we where the parties are looking to deliver more efficient and ultimately improved outcomes for all. So this is going to be quite interesting to get through this one. Ben and Glenn are obviously going to put a bit more meat on the bone as we go forward so we hear a bit more about the topic. And there's going to be an opportunity for you to ask questions during the discussion that will be hopefully picked out at the end for us to have a look at. However, just a quick reminder about who Seeker are, and using their proper title, we are the Civil Engineering Contractors Association. We're now in our 30th year. It is a not-for-profit trade body representing contractors that deliver and maintain a significant part of the mainland UK infrastructure. Seeker Southern is just one part of this member-led association that provides a mainland UK coverage across England, the devolved nations of Scotland and Wales, and with a policy office in Westminster. We engage with governments and those bodies that impact on our industry at both a national and regional level and deliver activity against our member-led Seeker core pillar initiatives. You can find out more about that on our Seeker website, where there'll be more detail. This series of the NEC4 webinars is aligned to our Seeker upskilling and training core pillar ambitions, providing an additional layer of awareness to the suite of seminars and bulletins that we're ready to deliver around the NEC4. We're really looking to increase both Seeker member and the wider NEC for user awareness, promoting the appropriate and equitable use of it. That is that will hopefully deliver more short outcomes for all of us. I'll now hand you over to Ben at Gather. Thank you, Ben.
SPEAKER_01Thank
Defining Value Engineering And Scope
SPEAKER_01you very much, David. Thank you, Glenn. Good afternoon, all. Welcome then to our 10th episode. And today we're going to look at the value engineering. And as always, had a little look at uh the origins of value. It's from the Latin value, which means strong, worthy. And it's actually giving rise to quite a lot of words in our vocabulary. So interesting origin. It's all about what it can do, not just what it costs. So again, I think we quite often say this in general conversation, don't we? Where's the the value in that, not just a measure of its expense? So we'll look at what value engineering is, and in particular for any C, it's kind of two main directions. So we'll have a look at those two. We're going to focus on each of those then. So we'll look at the contractors' proposals under clause 16. And these are ones where we are proposing to change scope the client has provided. We're going to have a look at the implications under each of the main options as to how value is unlocked for both parties. And then we're going to look at the second type that we're going to tackle today, which is if you have selected secondary option X21 for whole life cost. We're going to spend a few minutes looking at how not to do it. And sometimes it might it might feel possible to go down a completely different route, and we'll point out the sort of folly in that. Have a few final thoughts and hopefully plenty of time for questions and answers. We we tend not to have plenty of time. So I'm going to say it again, Glenn, perhaps on this occasion. This is a you know fairly brief set of slides. We should get through them. We never do. Okay, so firstly, then what is value engineering? So this is where specifically the contractor has a good idea that requires a change to the scope. So the scope document being that all-important document setting out the requirements for what we want. So typically drawings and specifications, but as we know, it's also constraints. And I think I'm going to take every opportunity I get to say this. Please use volume two of the user guides. Chapter three, how to write scope. If you're not using that, I would strongly suggest. These webinars are not legal advice, but I'm I think I'm fairly safe saying it's a good idea to go and get volume two, how to prepare whichever contract you're using, how to prepare the ECC, and then go and have a look at chapter three, how to write scope. Enormously useful document. So this good idea to change that scope. Well, the first question a contractor is going to ask themselves is is it worth my effort? And what would bring me to not bothering? Well, there's some pre-contract decisions the client
Incentives Set In Contract Data
SPEAKER_01makes and states them in contract data part one, which might change your appetite on this. So one of them is if you're under options A and B, is the value engineering percentage, which defaults to 50%, but can be different. And the second one is if you're on options C and D, it's the contractor share ranges and percentages. If these are too complex, too biased in one direction or the other, could be perfectly good procurement rationale for having certain caps and what have you, but we well worth just understanding their impact on the uh incentive and overall motivation behind coming up with value engineering. And finally, if we we need to use, if we're going to use uh option X21, it has to actually be part of our contract. Now, I guess Glenn, you could do that with a clause 12.3 uh agreement to bring it in after contract, but probably easier to just make it one of your selections before we start. So moving our our ways sideways from is it worth the contractor's effort? Let's assume it is. Yes. The next question is is it a re reduction to the payment to the contractor? If it is going to reduce the amount the contractor gets paid, then it's we go we go and have a look at clause 16.1, which would be the that form of value engineering we're gonna have a look at in a moment. And that's unique to changes to the client scope. If it's not got really anything to do with necessarily to do or exclusively to do with changing the amount the contractor gets paid or reducing the payments to the contractor, then it might be the case that it's gonna reduce the asset's whole life cost, the operational maintenance of it. And if that's the case, that might be more likely to be an X21 proposal, which can be a change to any scope. So one is about the the build cost, the cost the contractor is paid for providing those works, and it's about the client scope. And then X21 is about any kind of change for scope, and that's about reducing the operational costs. So picking up on that top right hand box, which is circled there, let's have a look at the workflow for a clause 16 one
Clause 16.1 Proposal Steps
SPEAKER_01in particular. So here we go, and we're picking up on the left-hand side here and over to Glenn. Oh, who I forgot to explain why my why I've got this smiley, well, not smiley face with the question marks. I guess this question is gonna run for a couple of slides, which is why would the contractor promote an idea, make a proposal for an idea that reduces the payment to them? Surely that's just gonna reduce turnover. Let's have a thing. Go to you, Glenn.
SPEAKER_02Okay, so this is new clauses 16. Now you might remember NEC3, I'm sure they had clause 16. Well, actually, it was early warnings in NEC3, NEC4, it's now clause 15, which frees up 16 to be contractors proposals. But this is the main element within contractors proposals. The only other element that drops into his, which we don't cover today, but I might as well say it uh 16.3 is where the contractor can propose a change to the working area. That's the only other bit that drops into the contractor's proposals. And obviously, contractors get paid for people within the working areas. There might be a reason why they would want to add to the working area. So they've got a new satellite office they've had to set up that's outside the boundaries of the site, for example. But that's just an site, not really part of today's topic, but it's the only other bit that drops in to contracts proposals. There's not a whole literary of things that, oh, yeah, there's loads of stuff in section 16. There's two fundamental elements proposals to change the working area, which we won't cover today, and this one, which is basically what amounts to a value engineering proposal. So if we work through our little flowchart here, so the contractor makes a clause 16.1 proposal to the project manager, and obviously, like any communication in writing, in accordance with the contract, hopefully through your cloud-based system that you've agreed and that you are using on that project. So the contractor puts forward the proposal to the project manager. The project manager, by the very nature, wouldn't make a decision themselves. They go and discuss with the client and with the with the sort of contractor to understand. And then the project manager will then decide if they're ready to accept the proposal. So the contractor will put forward the idea, the potential saving, and within four weeks, the project manager will decide whether or not they are ready to accept the proposal. It might be so clear and such a no-brainer, they say, yes, we want to do this, and they will then instruct it, or if they're not quite ready to accept the proposal, then the project manager at that point can instruct a quotation, which would then be a potentially revised quotation to the proposal they've already put forward, which again they're not then committing, they're definitely going to go ahead, or the project manager could decide that they're not going to go ahead with it. So they're the three options. Once the contractor puts forward the proposal, initial proposal, they can either accept the proposal and instruct it, instruct a quote or revise a quote, or state the reasons they don't go, don't want to go ahead. They may give the reasons, but obviously at the end of the day, the project manager is under no obligation to have to accept this. So it's offer and acceptance and the whatever, however good the idea is, the client might have other reasons. They just don't want to do this particular um proposal. So you can't force these through. It is kind of offer and acceptance, and the project manager will be the one who is managing this process. So the contractor can propose it, and then the the client obviously in discussions with the client, they will decide whether or not uh they want to go ahead. And uh you saw that that same guy with the question marks again and the slightly puzzled face. Why would I do this? What's in it for the contractor to want to do this? Well, hopefully we're going to uh change that guy's look on his face eventually. He's still back again, still at this slide, still not sure why. But hopefully Ben will have a smiley face eventually further on. So the point we wanted to make here was just a note on
Design Liability And X15 Checks
SPEAKER_02design liability. Because if this is an instruction change in the scope, then we just need to consider okay, would this change the design liability? So, project manager, any change to the client's scope would be obviously any instruction change in the scope would be a compensation event, but there won't be a transfer of liability. So if it is the client's design and the contractors come out with the idea, the client's got to make sure they're obviously happy and do their own checks that this proposal will sort of follow through. There's no instant, obvious change to the liability. Unless, as we said here, for example, if the proposal delete the client's design and replace with something the contractor's proposing, well, that may or may not change the liability. We'd have to question then is X15 included? X15 being the contractor's design liability being limited to the equivalent of resource, skill and care, then X15 might come into play as to whether or not that has or hasn't been included. So in simple terms, we'd broadly say that the design liability would remain with whoever it was originally. So this proposal is not looking to change that. So whoever's party has the design responsibility would need to make sure that by accepting the proposal, they're still happy with that design liability. Anything to add there, Ben?
SPEAKER_01Oh, you're on mute there, Ben? No, I think that covers it, Glenn. That'd be an expensive round, wouldn't it? No, I think I think that covers it. So what we want to do now is we spend a bit of time thinking about is this an X21 or is this a is this a clause 16? It's clearly clause 16 because I'm just looking at a couple of questions in the chat as well, because we are changing the client scope, it's a proposal to change the client scope, and results in the contractor being let being paid less to provide the works. So this is what this particular clause covers. It's it's uh not as broad as the whole life cost of an asset, it's it's just focusing on the construction, capital, expenditure, that kind of thing. So, what we're gonna do now is we're gonna we're gonna solve that confusion, the question marks next to our our mind there. Why are we doing this? Uh, we dealt with that express bit right at the front of the contract in clause 16 that sort of sets out how we go about triggering this procedure. And I want to pick up on that top right hand corner now, where where we're assuming we're going ahead, PM has accepted
Options A And B Saving Share
SPEAKER_01a quotation instructs to change the scope. So let's pick up from that, and we land in the top left now. PM accepts quotation and instructs change of scope. So that's where we left off on the previous slide. So because we're doing that, we also have to notify a compensation event. It's one of the event types under 60.1 that the project manager would be responsible for notifying. So there's no time bar on this. So we we we would be responsible for notifying that. And you can see across the top there, I've highlighted options A and B. That's because I'm going to talk about A and B, and in a moment, Glenn's gonna talk to you about C and D. And you can see, Glenn, you're happy to see there that the person there without the question marks because this is the answer to that question. Where is the value unlocked for both parties? So this is how it works for options A and B. We leave clause 16 behind, and much further on in the contract, now that we know it's gonna give rise to a conversation event, we we come to that next blue box assessment follows or complies with clause 6312. So in the case of options A and B, 6312 becomes relevant. And this is only relevant for this type of event where the change has arisen through a proposal from the contractor. And in this case, what might have been a really big idea of maybe a 400,000 pound saving, what we do here is we we capture that value of the conversation event and we don't reduce it to its full extent to 400,000 pounds. We're gonna we're gonna multiply it by the value engineering percentage, which as we said, by default is 50% unless you change it. And that's gonna give us a result in this case of a sort of tempered reduction to the prices of 200K. So for a 400,000 pound compensation event reduction to the prices, we're actually gonna end up with a 200,000 pound reduction. And you can see in the little chart below, we've got the value of the assessed CE at 400,000, but the implemented value of the CE is only to reduce the prices by 200. So you've got total the prices before the compensation event and total prices with the compensation event, and you can see that a fair bit's left in. Now, just for comparison, just remember if this had been an idea purely of the project manager, purely come from the client and project manager, then they would have just given a clause 14.3 instruction, changing the scope, and the contractor would have seen the prices reduce by the full 400,000. So the fact that they've had this idea, while the costs, all things been equal, the costs should reduce by 400,000, because that's what we the true and full assessment under the CE has been. We're actually keeping half of that in the prices. So obviously, that's a massive chunk of profit there. That um I can't do the maths off the top of my head, but you know, for margins where we might be making 200%, that's a 50th, isn't it? So 200,000 times 50, that's a lot. I can't do the math 10 million, is it? So it's it's equivalent to to winning 10 million pounds worth of work and successfully delivering that work and making the the typical profit on it. So yeah, massive. If you've got client-designed projects where you are coming with good ideas, clause 16 is definitely an area you want to be aware of. Everyone's happy. Right. So that's that's what happens under A and B. We make the calculation as we go, it's per compensation event. And we've just got to remember that that value engineering percentage is stated in contract data. So if pre-contract the client wants something other than 50%, then they need to state a different percentage in contract data part one. However, well worth just thinking this through because you can trip yourself up with this. Remember, we're dealing with a price reduction. So for a particular event, and I hope I've got this around the right way, Glenn, because I still have to think about it. The higher the percentage, that actually favors the client, the lower the percentage favors the contractor. So the lower the percentage, the less that price reduction is reduced, and therefore the more of the money stays in the in the total of the prices. So make the percentage too high, and it's actually going to discourage that innovation. Remember that first slide where we had the why should the contractor bother question. And it's a genuine one. Yeah, if we if we strip out all the benefit and all the incentive, then why would we bother? So, quick recap on that again. We assess the compensation event exactly how we would otherwise, but before we implement it, we are applying the assessment to the value engineering percentage to reduce the amount of the overall reduction, thus leaving some of the price in there. All things being equal, the cost should come in as per the coin, much lower than the otherwise, and therefore the contractor shares the amount of the value engineering percentage of that saving. Whereas if it had been a project manager's idea or come from the client directly, client's designers perhaps, it would just be processed as a as a change, which would have permitted the the prices to drop by the full amount. So, really, if you're not using this, not never heard of it before, definitely go and have a read up on it. It's a really good mechanism. Now, just talking about A B. Sorry, go on, go ahead, Glenn.
SPEAKER_02I was gonna say on that on that slide there, Ben. So just you said it. No, sorry, the next one. Um so just on your the the the final words on A B, you've already said it, but I think it's just worth repeating. So higher percentage favours the client. But as Ben has said, on the surface, a higher percentage favours the client, but then if the contract is not gonna get much out of this, then they're not gonna likely to put this forward and neither party gets gets any benefit. So it's really important. I I saw uh very recently, Ben, I saw two clients who both set the fee percentage at 10%. Now, do you think they really wanted the contract to get 90% of the saving, or do you think they just got that completely wrong?
SPEAKER_01I think they might have looked at it and thought, oh, value of engineering, we'll we'll let them have 10% of any good idea. And at that point, you would have inadvertently given 90%. Yeah. I think we're bringing a question at this point. Is there a risk? So thank you for your question, Peter. Is there a risk that the PM client sees this saving and perhaps views to see you in a less favorable light? Well, I guess you we've all been the the proposal, the initial proposal meant that they are actually obligated to discuss this with the client, which presumably means they're designers as well. We've gone through the loop of understanding the design. Liability and all that kind of thing. So I think I think probably the idea has been well considered and probed and prodded. And you know, if we make our decision to go ahead, don't forget all compensation acts by default are assessed 63.1. So you'd be doing a full cost defined cost assessment without the CE and a full defined cost assessment with the CE, and it's the difference between the two. So any any kind of any kind of consideration along the lines of your question would have to depart from one of those fairly, you know, fairly transparent bits of the process. So I think there'd be plenty of opportunity to to push back as if it was any any kind of event. Glenn?
SPEAKER_02Yeah, yeah, I'd agree. So it shouldn't, it shouldn't skew that. And it's yeah, this is uh this is a compensation event. And the contractor, also some people, contractors have asked me all, if they can they just reject the uh the proposal and then offer it as an idea of themselves further down the road. But this has been well documented as the contractor has come up with the idea in the first place. So again, with a good cloud-based system, it's very clear on who's come up with that idea and and and importantly first.
SPEAKER_01Yeah, and 63, let me remember the clause number, 63.12 and 63.13 in the bin the in the bit that Glenn's about to show you is is related to clause 16. You can't kind of you can't let some time pass and then have another go. It's it's it's there. So that was A and B. Glenn, talk us through C and D because it's slightly different, isn't it? Yes.
Options C And D Gain Share
SPEAKER_02So we we don't have a value engineering percentage in uh in C and D. So it's very unique for A and B. Again, a new feature into NEC4, uh, whereas C and D is a slightly different mechanism. And unlike options A and B, this same mechanism did kind of work in NEC3 already. It was with options A and B in particular that was a missing, but here, broadly speaking, four is still what it used to be in three. So I remember using it in NEC2. Right, okay, okay, yeah, all the way back. Brilliant. Um was in two as well. Um you're showing your age now, but so here um we've got clause 6313 that says the prices are not reduced. So we don't need a value engineer percentage because the target before the compensation event remains the target after the compensation event. The contractor's forecast cost comes down, and the difference then goes into the same sort of commonly known as game chair pot, assuming you're under the target. So it will be shared whatever the percentages are within your contract data. Now, again, those percentages could be a straight 50-50, 60, 40. Sometimes they're bandings. So it might be that a certain amount for the first, you know, 10% under the target, the contractor gets 50% share. Maybe for the next 7.5%, the contractor gets 30% share. And below that, they only get uh uh you know a lesser share. So it might be that this value engineering brings you into another band, so it might be you get slightly less of a saving, but whatever that saving is is still going to be more than your fee percentage, inevitably. So it's always gonna be worth your while in terms of coming down. I guess the only time it wouldn't be worth your while is if there's a cutoff and your good idea takes you into a band where you no longer got any gain share. I guess that's the only time where you would actually lose out uh altogether on what otherwise is uh is a good idea.
SPEAKER_01So there can be a fairly, fairly rational reason for doing that. Sometimes you and I debate this first, but it's it's not always wise just to choose a target contract because we're not sure what we want. Uh it does have the mechanism for for sharing the risk, but I don't know, I don't know about you. I'd still favor going off and and improving the knowledge about what we want, doing a few more studies. But if you do do that, then one of the things that people feel a little bit safer doing perhaps is to cap the amount of game share that's available to the contractor in case it was just a poor design from the beginning. And actually, we kind of don't want that feeling of an artificial saving. So maybe we say, well, what's the maximum that's a sensible saving? Maybe it's 10 or 15% beyond that. We're a bit nervous. So you can get these situations where the game share is capped quite early. And actually, if you are making those savings and you're getting near that limit, and then you've got something genuinely innovative, then it I guess that where is where it could work against you if you've been a little bit too too restrictive. I don't know whether that supports what you were saying.
SPEAKER_02Yeah, it could, it could, couldn't it? But uh it's it's a good problem to have for that stage. And and look, the client will be very happy for at least 15 minutes. And uh I think you're the you're the best contractor in in the world. So, yeah, easier mechanism, in as much as the uh the saving that results just goes into the global pot, which obviously I'm sure you're very familiar. I think we've done a webinar on option C already where that pain-gain calculation is done at the end, it's done once. So kind of Ben already said that with options A and B, you know the savour you're gonna get along the way, whereas the only downside, is it a downside maybe, but uh that you don't get the visualization or the reality as to exactly what you're gonna get because that calculation is is done once at the end. So there's a preliminary assessment done at the completion of the whole works, and then the final assessment, obviously, with the uh the very final application. So, yeah, the share ranges, percentages will sort of alter the real life cost the contractor will get from that from that benefit. So the more these configured to favour the client, the weaker the motivation of the contractor to propose that value engineering. So it's it's like anything. We've talked in these sessions before that either party's got to be, particularly the contractor, has got to be motivated. There's got to be something in it for them to want to do these things. So things like KPIs, you know, project KPIs. How often, Ben, have we seen KPIs that actually do the opposite of what they're trying to do? They try and sort of uh but they try and add a benefit, but actually encourage behaviors that don't anywhere near construe the original behaviors that were originally put in place. So wrong percentages, whether it's the share percentages or the wrong value engineering percentage, will then kind of detract or devalue potentially the benefit it was trying to bring in the first place.
SPEAKER_01Absolutely. And I and I should have said at the start, please do engage in the um in the in the chat there. Do send your questions through. We'll try and get through as many as possible. I'm particularly interested on X21 as well. So I can see another couple in the chat. We'll bring you in shortly. And uh yeah, uh you and I haven't had a huge amount of experience of X21, I don't think, Glenn. Um I've done a I've seen a few clause 16s, but interesting to see what everyone else is is thinking about these and and share the kinds of examples that you've got if you're happy, without perhaps naming too many real projects, if you're happy to put them on and we can we can flush them on the screen here. Because it's not all about the works themselves, is it? I I think I've had I I've seen ones around some constraints that perhaps have been lifted. So it might be that you are assuming you're gonna allow a certain amount of settlement on an earthwork embankment, and then you come up with a a slightly cleverer design to to so the piles can resist lateral forces from uneven settlement, and you know, suddenly you can advance. So there's a few a few things like that. It's not always necessarily about the materials used or anything like that. It could be more broadly about the scope. So yeah, worth worth having, I think about reminding yourselves what scope is. It's more than just drawing the specifications and thinking a bit broader around around how that client scope might be tweaked or changed uh for benefit. Good
Whole Life Cost Proposals Under X21
SPEAKER_01stuff. Okay, let's go back to that slide that we looked at before. So this is the one we we started the webinar on. Is it worth the contractor's effort? Yes, but this time it's not about the client scope exclusively and not about reducing the the capital build cost. Now we're thinking about well, any scope that might bring about an operational benefit. So perhaps we're talking about you know alternative local sources of power, perhaps a perhaps a wind turbine or a set of solar panels or something, maybe a different kind of plant or machinery that's been spec that you you think could bring back some kind of benefit in operating costs. So yeah, we're we're we're thinking a little bit a little bit broader. Should we put the the computers in the basement rather than the roof? Uh I don't know, I'm not a buildings engineer, but all these sorts of things that might bring about an X21 proposal. So we have to have this in the contract for it to work. So if secondary option X21 is in the contract, then we can go ahead and make one of these. So the contractor may propose a change to the scope in order to reduce the cost of operating and maintaining an asset. Now, interestingly, there's no express requirement to consult with the client. I don't know. I I might just be one of those things that on close inspection, we you know, we if if we were drafting it at the time, we might have made made that consistent with clause 16. I see no reason why you wouldn't be obliged to take it to the client and discuss it with them as the P. And it feels very similar to me in terms of you know the contractor proposing it. Perhaps someone out there knows why there is a difference between the two then. But I I think in practice, obviously, we're going to be discussing this with your client. The quotation then includes it's a little bit broader. So the quotation that you go in with, if the project manager is prepared to consider the change, the contractor will put in a quotation detailing the idea, a forecast whole life cost reduction. So perhaps you're forecasting over 20, 50 years, whatever it might be, an analysis of the resulting risks to the client. So a bit of a swat on the idea, proposed change for the prices, and any revised program showing proposed changes to the completion date and key dates. So those last two bits kind of mirror what quotations for compensation events require proposed change to prices, proposed change to the timings. But very importantly, this is not a compensation event. So we are not within the framework of the NEC compensation event rules of assessing and define cost and all that kind of thing. And the the other thing before I hand over to Glenn and we just explore the last part of this process, is just to say that, and this comes up a second time in a minute, if the project managers not prepared to consider the change, they are then their ability to subsequently give that as a change is is prevented. So that you know, if if you decline an idea, you can't you cannot then separately go ahead and progress with it. So I guess you can't take an idea proposed to you earlier and then kind of attempt to remove the contractor from having some benefit to it. But let's have a look at little look at this a little bit closer because the story progresses a little bit further, Glenn.
SPEAKER_02Sure. Just on the last one, I'd just probably say that in my experience, it's less likely to lead to a change in the completion date. Actually, less likely, but not impossible, certainly not earlier. And yeah, it's normally in the most part, I'd say these are in to summary, spend money now to save money in the long run, is typically what these might be not strictly true in every case, but you know, whereas the sort of value engineering is generally to save money, these are save money in the long run. But in the likelihood is that there's gonna be uh an increased cost. Now, if it's cheaper and gonna save money, well, happy dates. But uh very often these will be to you know have a long-term saving, but maybe a short-term increase in cost, which has been said, why would you not liaise with the client? I think a client would pretty miffed if uh their project managers accept a proposal that's gonna cost them money and they may or may not agree that it's gonna have that long-term, the long-term benefit. The client's got to be pretty confident it will give that long-term benefit. If there is, I don't know, in it if you were to install this more expensive material, it won't need as much maintenance. It's gonna save you £10,000 a year of maintenance, but gonna cost you £50,000 now, but it should last 15 years. So the client and the well, the project manager initially, but uh on the client's behalf, has got to be pretty sure it will reach that benefit. What the project manager or the client can't do is knock on the contractor's door in 15 years' time and say, we didn't get that saving, we want our money back. So they're obviously going to have to be confident that it will give the proposal or give the long-term benefits that the proposal is being put in place. So here the contractors, you know, obviously made the proposal, project manager deciding would they be willing to consider the change. We've had a chat about this offline, myself and Ben, and myself and I said to Ben, Ben, can you see a reason why a client shouldn't include X21? And Ben's immediate answer was not really. Well, why not? And that that's my view. We did put a similar poll in the LinkedIn group, our NEC people LinkedIn group, and it wasn't as conclusive as I thought it was going to be. I think like 55% thought yes, they should always include it, but 45% of a fairly low poll, it's about 69, 70 people. Still, some people were saying no. I don't know what you think here, but I can't, once we finish this, look at X21, I can't really think why a client wouldn't want to be including it. So you might as well put it forward because the the project manager could say no on every occasion. So given that they are not forced into this, and the project manager will make a decision based on the chap's proposal, himself and Ben see no reason why you shouldn't include X21. You might as well rather rather than not. So, project manager, if they don't accept, then that's it. It goes no further. If they do accept, then the project manager instructs to change the scope. But this will be an exception to being a compensation event. So it won't be a compensation event. And then the project manager will change the prices, the completion date, and any key date accordingly, if that if that is the uh the case. But typically, in our experience, uh in most cases, um, it will probably be an increase to the cost initially to save money in the long run for the client. So that's what these are are here mainly to encourage and introduce.
Why X21 Is Offer Acceptance
SPEAKER_02Absolutely.
SPEAKER_01I've got an interesting question here from CN. Thank you for the question. Uh, what is the reason that clause 16.1 and 16.2 is treated under the CE process, therefore, time cannot be reduced. But X21 is treated as a commercial deal instead of a CE. I think that's a good question. I think off the top of my head, I would say that you affect the change to the scope as it relates to the cost the contractor is being paid for the works. All of that fits neatly within the existing tools of NEC. But where we are considering costs beyond just the provision of the works and into things like whole life costing, there might be a bigger conversation to have, I guess. And and there are potentially other things at play, like design liability and and and other considerations, maybe planning, all sorts of things like that, I guess. Health and safety, perhaps. I quite often wonder why why health and safety we could maybe bring that in as well. Is it not just a benefit perhaps to the whole life cost? Is it an argument to the health and safety in operation of something? I remember switching from internalized jacks on a bridge to boxing them so that they were on the outside and boxing them out, and thinking, well, that's more than just a saving for maintenance, that's actually a safety point as well. So I think where it's broader, and again, if you think of the other places that NEC does this, so acceleration, again, that's more of a commercial consideration and a defect acceptance as well. It's more than just, you know, a design decision. It's broader than that. It's it's it could be aesthetics, it could be that time is of the essence, and we just want to move on, and therefore we're willing to compromise a little bit. So we're kind of going outside of those standard contract mechanisms, and it becomes more of a commercial conversation, which has my understanding why design defect acceptance moves from the supervisor back to the project manager, so we can make that more balanced technical and commercial judgment. Anything to add on that question, Glenn? But thanks for your question.
SPEAKER_02No, I'd agree with that. I think that yeah, uh for that reason, the the three elements X21, uh default, uh, sorry, defect acceptance or a quote for a not correcting a defect, and then acceleration, they're treated as a view of, well, here is the offer, and the project manager can't make their own assessment of those elements. If you take an acceleration, you know, the big part of acceleration would be the contractor's view on risk on having to finish earlier. If the project manager can make their own view of that, that would be wildly subjective. And now the the contractor's forced into doing something for a lot lower risk, and they'd have to challenge that through dispute process. So, yeah, I think it's viewed in the same way. There's a lot wider ramifications here. So it's one of the rare offer and acceptance, take it or leave it, rather than through the C process, where the project manager can make their own assessment.
SPEAKER_01I don't know though. The more I think about your question, I do like the challenge. I I wonder whether whether an alternative route to do this would have been to assess the change to the scope that triggers this as being a compensation amount under the normal rules. And as Glenn said, it's quite likely you're going to spend a bit more money, maybe take a bit more time in order to deliver a longer-term benefit. And then maybe a second part of it, which might be the commercial negotiation to cover the cover the share of the value. So I can see you know, I I could see why you might might make an argument for both. I guess NEC in its uh approach towards keeping things simple as they can be. And it says, well, you know, if we're minded to do it, then why not wrap the whole thing into a single quote? But yeah, it's uh it's a good it's a good challenge. Thanks for that question. I've got I've got another question here from Peter Turner again. Thank you very much. Uh, what's the stop of client taking an idea, dressing it up as a scope change, and keeping all the benefit? Who actually owns the idea and where does the contract protect the contractor's position? Let me cycle back to this slide, Peter, because that is a good question. And again, remember clause 13.1 of the contract is that uh all communications must be in a form that can be read, copied, and recorded. So a proposal needs to be in that form. And I guess we want to be a little bit cautious having too many conversations if it's a we should be putting in writing straight away. And then 16.1 is that formal documentation. It's the bit that was missing in NEC2 and NEC3, that express provision for how to start this process and make a formal proposal. That kind of I think is the answer to your question. Because as long as you do that, and I guess there's a little bit of overlap with things like early warning meetings, where you're obliged to come up with proposals and solutions, and actually, well, it's still potentially a change to scope. So there's a little bit of thinking there, you know, uh, how am I fulfilling my obligations properly by cooperating and collaborating in an early warning meeting versus maybe banking an idea more formally through the contracts proposal logic? And then as we move on, we can see that this then triggers and the testing clause 63.12 and clause 63.13, regardless of which of those, which of those four main options you're under, that test is did it come from a contractor's proposal, which should be in a form that can be read, copied, and recorded. So we all and again, like Glenn said, if you're using contract management system, you know, hopefully we can find it quickly, associate the two together, and off we go. Hope that answers the question. Uh anything to add to that one, Glenn?
SPEAKER_02No, that's it. So it's about documenting documenting it and getting the idea on the table, whoever's come up with it. Because as we've seen, you know, if uh if the client comes up with the idea on a and it's it's not alive engineering, it's a change of the scope to get the full benefit. So yeah, the contract needs to document it first.
SPEAKER_01Do you think I mean you asked the question in your in your poll on LinkedIn about, you know, is there any downside to taking X21? Is there any downside to taking X15? Because some of these, some of these, I'm gonna bring David back in. Some of these uh proposals or ideas may well see the scope change to remove the client's provision altogether and simply replace it with a requirement that the contractor design something. Do you think X21 perhaps sorry, X15 is perhaps something that's just ought to be in there anyway?
SPEAKER_02Well, just in case. Yeah, what if what if they don't have a design responsibility, but we put X15 just in case they something comes up that they do?
SPEAKER_01I I know it sounds a it sounds a little bit tenuous, but I'm thinking here, if we've got an idea, then we're debating, okay, we we're minded to do it. But as the client, we'd rather you take the liability for that for that slightly different design. And then if X15 isn't there, then there's it's very difficult for the contractor to actually progress that proposal because they couldn't take the design liability without the liability being capped to reasonable particular care. And if X15's not there, then that's not the case. So I guess I guess when you're looking at your project from a procurement point of view, you're just thinking to yourself, I mean, I'm thinking quite a bit about value engineering. There's plenty of scope for that. Is there a chance that we might want to make sure the uh liabilities on the contractor there, in which case X15 might be? It's one of those questions, isn't it? When would you not take it? We have a similar debate about X2, don't we? When would you not take X2 as a sensible allocation of risk for changes in the law?
SPEAKER_02Yeah. Yeah, it wouldn't do any, well, it would do no harm if X15 is there and the contractor's not initially got any design. It's just there just in case it wouldn't do any harm.
SPEAKER_01It would just be benign, wouldn't that? Yeah.
SPEAKER_02Yeah.
SPEAKER_01David, did you want to come in before we jump to the next bit? You're on mute, sir. Let me see if I can unmute you. Go ahead, David.
SPEAKER_00Sorry, yeah. Two aspects. So obviously you're talking about X15, but going back to X21, it all depends, you know, if if the project manager's not selecting X21 or the client's not selecting X21, I suppose it really depends, the importance of that depends on the route that they're taking for procurement. And if you're sort of going down a route where it's a competitive bid situation, then the contractor's going to put forward the best option they've got to get over the uh the threshold, as it were, and and to pick up the project. And if you don't have X21 in there, any sort of benefits that they may be able to add at a later date or any improvements in technology or awareness will not be entered into the into the fray, as it were. You won't be able to take advantage of that if you haven't included X21. So, in a way, you're you're shooting yourself in the foot as a client by not allowing that opportunity because often through the development of a project, opportunities do arise. In terms of X15, then you've got to consider the risk perspective that the change may be imposing on the contractor above and beyond. And I know that obviously X15 sort of tailors that to a degree, but the whole process is the change is being done on the basis of a you know the client need, and the client is still liable for that. So if you are then going to change that circumstance, then that needs to be fully considered by the contractor and the parties as to how it sits.
SPEAKER_01Absolutely. No, completely agree. So let's I've got a quick question. I'm gonna actually come to you, Terence, just after we've done this next slide because I just want to briefly talk about how not to do it.
The Clause 21 Shortcut Trap
SPEAKER_01And and this is a genuine mistake that some people make, so worth just flagging up here. Don't make the mistake of thinking that clause 21 contracted design submissions and project manager's acceptance is a way through presenting a good idea, it's not the right place. A project manager's acceptance to a contracted design is not a kind of secondary route to changing the scope. The only way the scope changes is by the project manager giving a clause 14.3 instruction. And you'll notice that the language of clause 21, for example, is about submits for acceptance. It's not for approval or for agreement. So any project managers listening out there, make sure you are disciplined in the use of your verbs. So don't approve or agree things where acceptance is the verb. Clause 14.1 specifically carves out acceptance. It says the project manager's acceptance of a submission from the contractor does not change the contractor's responsibility to provide the works or liability for their design or words to that effect. So we we need to be very careful. And in act in action, you might completely uh innocently be thinking to yourself, well, look, I can see in the bottom left-hand side there, I can see the scope document is wanting me to do something in green. Maybe I purely for my own reasons want to do it in blue a lot cheaper. And if I can get that put into my contractor's design as blue, and then I get the project manager's acceptance, maybe it'll be okay. It's not, it's really not okay. And if it if you put blue on the on the finished works, your final supervisor's going to be writing you with defect. So design, submission, and acceptance is not a shortcut. If you've got a good idea, or more generally, you just want to change something, maybe blue is green is much more expensive than blue, that might be an early warning, something that could impact your uh total costs. It's the sentence underneath the the the four bullet points in clause 15.1. Alternatively, it might be, as we've just discussed, a clause 16.1 idea if it benefits both parties. But I don't think that you the right way to do it is through a design submission. It's not anything to add to that, Gents? I think we've covered that one.
SPEAKER_02No, just emphasizing. So acceptance doesn't transfer liability away for Gachat to provide in the works or liability for their design. So yeah, it's uh a lot of Gachators think, well, what's the point of the accepting then it's meaningless? Well it's it's not meaningless, it just doesn't mean as much as much as they wanted it to mean. So yeah.
SPEAKER_01Yeah, it's another pair of eyes, isn't it? And it's an opportunity, it's a gateway for another opportunity because you can't, you're not, you're not able to proceed with the works until you've got that acceptance under clause 21. But it's it is nonetheless an opportunity for somebody to spot something, but it's not if you don't spot something, it doesn't relieve you of the of the obligation that the scope puts you under, is is the sort of main point there. Is uh as a contractor, thank you, Terrence, for your question. As a contractor, which option is better out of A, B, C, D, and Y. Well, I think I think you you probably want to spend an hour or so. We haven't done a webinar on this yet, but a webinar uh an hour or so looking at the strategy behind the main options. I think there's several things you want to think about there. There is no easy answer to this. It depends on the context of your project, the the knowledge you have of the ground, the quality of your scope, and and all of that before we get into questions like what's the client's genuine risk appetite, and lots of people fixate on budget certainty. And actually, there's two two dynamics to that. It's the certainty, but also value, and very difficult to get both. So option A will give you more certainty, option B might give you better value, uh, depending on the ground and nature of the project. So it's a big question. Oh, for keep watching this space because we'll definitely do a webinar on this and it unpacks that. Obviously, the the the various training courses out there certainly typically spend an hour or 40 minutes or so looking at this point in in a bit of detail. In terms of what we're looking at today, value engineering, I think A and B gives you a little more upfront certainty, but C and D contributes to uh in aggregate to you know contributes to a a game situation. So I would say that they're equally as important.
SPEAKER_02Anything to add there, Jance? I would I would have just uh answered a bit quicker, Ben. I'd have just said it depends. Yeah, yeah.
SPEAKER_01I I thought you were gonna say attend one of my courses.
SPEAKER_00I I think with C and D though, you have probably more opportunity to have an influence on the outcomes.
SPEAKER_01Well, I think well, I think what's interesting, isn't it, is in in C and D, all these main options, we are required to cooperate in a spirit of mutual trust and cooperation. We're required to cooperate. And if we follow the NEC procedures in that spirit, we'll also be collaborating. And and I think what what option C and D do is it takes it a step further again and says, well, we're gonna share in the risk and reward of that collaboration, which which in my mind makes it partnering. And value engineering allows for a little bit of partnering even in in A and B contracts where we're sharing the risk and reward. So yeah, and and yeah, but it's it is a big topic, actually, that and we it also depends on what you'd have done as an alternative, or were you thinking of doing a price contract as an alternative? Because there's some thinking to move you towards targets, and equally, if you are thinking of doing a cost reimbursable, then there's some thinking that might move you towards or further from targets. So it's a big topic, and uh yeah, well worth the time to maybe we'll do a uh a webinar on that in the future, that'd be a good idea, yeah. Right, okay. I think
Final Advice And Next Webinar
SPEAKER_01that brings us to a few final thoughts, David. Do you want to sum up for us?
SPEAKER_00Yeah, thank you for that, Ben, and uh Glenn for that. I mean, I suppose starting in the right place before you even think about submitting some value engineering as a proposal, you just need to make sure that the scope is already, the existing scope is already clearly defined and agreed, so that uh there aren't any ambiguities if you then do proceed to submit a value engineering proposal. And that in itself makes it easier for the project manager to actually assess and accept any proposal that you put forward. The other thing to consider, particularly from a contractor's perspective, is that you're often constrained by the practical considerations around time, resource, and also the risk considerations when you're developing any proposals during a live project. So you really need to make that assessment as to whether this will really bring a benefit to yourselves and to the wider project. And really at the bottom of this is will it actually be balancing the commercial risk about that sort of potential shared benefit for everyone? So that that that's the starting point. Once you've got past that, as was picked up by Ben on a few occasions, is that you need to make sure that you're getting your proposal put down in writing and submitted in the right way, mainly so that it remains your own idea. So you're you're actually putting down the groundwork, you're actually sort of um your owning the proposal, as it were, from as early a point as you can. You're obviously going to be using clause 16 and X21 where it is included. And we have had some sort of discussion about whether we need to include X15 as well, and that's a probably needs further debate on that one. But certainly ensure that the design level perspective is adequately considered in any proposal, because it's the contractor that's actually proposing a change to the sky to the client scope, but the liability should not shift. So that that's that's where the clarity needs to remain on that, and the contractor doesn't inadvertently want to be adopting any liability, the change needs to stay with the client. The also to incentivize within a scheme or project the right balance of sort of or to incentivize value engineering, you need to have the right level of value engineering percentages included in the contract, and that will help generate that sort of momentum to actually look at actively sort of putting forward opportunities to bring about a benefit for everyone. I think Ben touched on it towards the end there. Don't use the contractor design submission to suggest changes. As he said, you can only use 14.3 for that, and they can't be accepted by or sort of built into the scope by any misacceptance on behalf of the project manager. And probably most importantly, keep talking. The early engagement and collaboration between the parties can significantly improve both the quality and the uptake of value engineering proposals. And where that is transparent and everyone's taking a fair approach to sharing the financial benefits between the parties, that's going to actually help drive genuine innovation. And that's probably all I was going to add to that, Ben. I'm going to leave it at that. Thanks, David.
SPEAKER_01Yeah, no, good summary. We out of time, so I but I think we did questions during that. It's quite good, actually, quite a nice way to do them. I think we we made sure we got a few more in. Leaves us to advertise episode 11. We're gonna have a little break because it's it's there's a lot, a lot goes into these. So um we and I'm trying to squeeze them in through the summer was uh was going to be difficult. So we'll have a little break and we're gonna come back on the 7th of September with a topic called communicating correctly. So we're looking at this the eight simple rules of clause 13, unpack those a little bit, think about how some of these systems, what all their benefits, and and and you know, making sure we're not inventing extra defined terms and and things like that that might be unnecessary. So it should be quite a good topic, Glenn. I think you've originally done something around this, haven't you? So we're we've got a bit of a head start.
SPEAKER_02Yeah, we did one of our yeah, one of our early speaker bulletins. So uh yeah, we'll be clicking by that thread and and more.
SPEAKER_01So uh yeah, very, very important topic. Well, we hope you you can join us for that. And I think in the meantime, the uh this gets seen by about three, three and a half thousand, so maybe four thousand people over the course of the cup next couple of weeks following each of these going live. And it's a shame we can't get the benefit of all their questions and answers as well. So if you're seeing this, please do uh post it live. So if you're seeing it after the event, please do get in touch on LinkedIn, drop us some questions, particularly be interested in anyone who's used X21 and and what your experiences have been, because uh I'm very inexperienced and it'll be really interesting to see how how that's been used in practice. So I think that leaves us to say bang on time then. So thank you very much everyone, and we'll see you at the next one. And yeah, please do carry on engaging us in LinkedIn and uh we'll see you all shortly. That's bye from me. Thanks everyone.
SPEAKER_00Thank you too.
SPEAKER_01Bye.
