Jacob Austin (00:00:17) - Hi all, Jacob Austin here from QS.Zone. And welcome to episode 46 of The Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 46, is inspired by an old project of mine where neck didn't go particularly well. So I wanted to talk about the mindset shift required between working on an NEC project to your more typical JCT job. And before we dig in, thanks for tuning in. If you're new to the show, please subscribe for more user friendly advice on all things subcontracting. Now, I haven't spoken a lot about NEC on the podcast. It does crop up on various episodes, as I do try and tell you where there are differences between the JCT approach and the NEC approach. But I did do episode seven, which was all about NEC four and a specific episode number 41, which spoke about compensation events. But other than that, in spite of it being easily my favorite contract to work with, I haven't said a lot about it.
Jacob Austin (00:01:22) - And that is because the majority of the work out there is still carried out under a JCT contract, so I tend to use the JCT 2016 design and build contract as most of my reference point, because it is more common and I want the episodes that I produce to be as much use to as many people as possible. But I feel like it would be remiss of me not to mention any C at all. So this week I thought I'd throw in this episode and talk about the mindset shift required between working in a JCT environment to working on an NEC project and where that comes from. And it's important to understand the difference, because applying the same JCT hard nosed kind of approach really ruins the whole thing. And I experienced this on a particular project, and I'm not going to name the project specifically for the sake of the parties involved in it. But this was 6 or 7 years ago, constructing a fairly large scale scheme on the behalf of a government based client. And I think really the build component of the project went really well.
Jacob Austin (00:02:22) - There were inevitable hiccups in it, as is the same on all projects, but it was the commercial relationship that didn't really embody the spirit of the contract. And it's difficult to really say why the client had an independent project manager, but that project manager very seldom got involved in the job, and he only really provided the payment notices and occasionally got involved in the monthly client meetings. And that meant that the day to day running of the job was done by people from the client organization and people from my company, the contractors organization. And it might have been this that gave it the sort of us and them feeling to all of the meetings. Perhaps a lack of impartial person sat there to say, actually, he's got a point with what he's saying now, and you always expect these people to sort of on the side of the client anyway. But I think it does help for them to be at least one step removed from any of the parties. And another thing that I think might have caused some issues was that there weren't a lot of proper negotiations when it came to the compensation events, and this particular job had quite a few compensation events because in spite of there being quite a long and drawn out pre-construction period, because of how that time was spent, it meant that the contract ended up being cobbled together quite quickly and all right.
Jacob Austin (00:03:39) - The price was well thought through and it accurately reflected what was on the drawings. But for me, there was too much conflict within the work's information or what's now known as the scope, so that if you wanted to be obtuse, you could pick on any single thing that we had to design and then build and argue it away. Because of the volume of documents, there was pretty much guaranteed to be another document that said something different. And then when you couple those things together, so the lack of impartiality, the US in them approach and the volume of conflicting information, and then you start applying the rigid neck approach to it with its time bars and cycles for when notices have to be issues. It's sort of creates this environment where you're forced to have regular arguments with the client or the employer to give them their proper term under the contract. And that then leads to a really adversarial situation, because you've got to raise compensation events and you've got to raise early warnings within the period stated in the contract, or then you basically miss out on your entitlement.
Jacob Austin (00:04:42) - And when it turns adversarial, the employer will have no hesitation in turning the timescales against you and trying to highlight that, oh, you knew about that before this particular cutoff date and you failed to notify it in time. So I'm just going to reject it now. And then you get the client rejecting compensation events because they say, oh, that's not a compensation event. Even when you can demonstrate that it is. And then you also have them saying, oh, well, you didn't raise an early warning about this, and I think you could have done because of this then as well. What we started to get was a lack of engagement with reviewing. Early warnings when we submitted them. So more than one occasion they were turning into compensation events before we'd had any chance to discuss them or try and do anything about it. And so therefore, if you are doing it NEC project, it's really important that you get into the right place. You read your subcontract and you get to know and understand what you need to do.
Jacob Austin (00:05:37) - Because in any job that is done badly, I think is far more adversarial than any JCT contract. But when it goes well, it's great. So the NEC contract is built around project management techniques, and because of that, the program is the number one document. A lot of our obligations get expressed through the program. Things that you want the other party to do have to be communicated on the program. The contract has obligations to submit regular programs, and even the change process, which on other contracts is completely separate from the program, is dealt with by reference to the program, and the program must be impacted with the effects of any changes. And rather than the contract program being something that you put in the drawer and you get out every so often to demonstrate how good you're doing or to beat yourself up over it because you're not doing a good enough job. The program here is something that you should be getting at and looking at all the time. It should be treated as a live document, and there's an obligation for that to be updated on a regular basis.
Jacob Austin (00:06:40) - And it should always be updated if there's a change. And the other idea is that there isn't a main contractor program and then the contractor issues a target program, the contract program is issued at the start. And then if you think you can make some betterment throughout the program, you re-issue that program and establish the time that you've saved as float. Or if within some of the activities where you know you might be subjected to weather delays, you build in some time risk allowance for if those things take longer and then those time risk allowances get saved, then again, they can be added to the end of the program as float. And you bring forward your forecast completion date. And what this does is it always maintains accurate information for both parties to work from, so that then if you're able to capitalize on that, save time and you can get finished quicker, the obligations that you need the client to do, if they're doing any fitout work or if there's anything that they are due to provide to you, then they've got a live date that's accurate and they can confidently work to so that there's no confusion over when something needs to be done by snagging again is another good example of that, because you will put the client snagging periods into the program.
Jacob Austin (00:07:52) - If there are changes and delays and they slide backwards, then the client is aware of when their clock of works or the person known as the supervisor in any key terminology is required. And then the other thing is that the contractor can build up this buffer afloat in between their planned completion and the completion date, and then that float is theirs. So it does away with the need for there to be a target program, because then one document does one in the same thing. And when changes happen, which they inevitably do, throw out a job that float stays as the contractors float. The employer doesn't just get to start using that as a period when changes will get completed. If there's a change, then the completion date along with the complete duration of the float all gets moved backwards. Of course, if that change has a program impact. So hopefully you can see how important the program is to NEC contract and how you always need to consider the program when you're looking at changes. So you adjust it accordingly and you get your hands on the time that you need.
Jacob Austin (00:08:56) - The other thing that is different is the collaborative and cooperative approach. There isn't just an aspiration of the contract, it's actually written into the words. And this is something that was introduced off the back of the Latham report, Constructing the Team, which was published in 1994, and that said that the most effective form of contract in modern conditions should include a specific duty for all parties to deal fairly with each other and with their subcontractors, specialists and suppliers in an atmosphere of mutual cooperation. So here, in the words of the NEC, for you have two clauses which are 10.1 and 10.2 and 10.1, says the parties, the project manager and the supervisor shall act as stated in this contract. Now, the reason why this is important is because it gives a really clear requirement for everybody who's a party to the contract, along with the two people, the project manager and supervisor who are named in the contract to act in accordance with the rules. And there are 33 separate enforcement clauses within any four which require you to do an action, which then, if you fail to do, there are consequences.
Jacob Austin (00:10:08) - And perhaps those enforcement clauses could be the subject of another podcast because they're quite numerous. And it may take a little bit of. Lining to get through them. But the important thing about this is the contract tells you to do these things. Now, some people get a little bit angsty about being overly contractual and oh, I don't like to submit a notice. I don't like to submit an early warning because it's seen by the other party as being aggressive and contractual. But quite clearly here, the black and white of the agreement that you're entering into tells you that you must do it. So by doing them, you're not being adversarial, you're just doing what you're supposed to do. And then this goes on to the second clause. 10.2 the parties, the project manager and the supervisor shall act in a spirit of mutual trust and cooperation. And this is obligating you to behave in a collaborative fashion. So when you are submitting these notices that are required under the contract, whilst it doesn't actually explicitly tell you to talk to the other party, for me the implication is there that you talk to each other.
Jacob Austin (00:11:15) - And importantly, as well listen to each other. And that's part of having a good, trusting, collaborative relationship as the contract unfolds, rather than just simply sending early warning notices like you're throwing a grenade over the parapet to see what will happen, you talk to your counterpart in the same way that you would talk to somebody else that you trust, and you have a frank and honest discussion about why you're sending, what you're sending, what the implications are, what kind of things you might be able to do to avoid it. And it's doing these things that's really important to making a success of the contract. We've all been there playing email, tennis, having arguments about this issue and that issue, and neither wanting to let the other party having the last word on a situation. But ask yourself if this was somebody that you had a good, trusting relationship with, how would you deal with this issue? The contract says that you've got to issue a notice. You've got to either send your early warning or your compensation event, but then it also says that you need to act with this spirit of trust and cooperation.
Jacob Austin (00:12:19) - And if you are trusting and cooperating with one of your friends, would you just send them a letter that says, here's an issue, deal with it. I don't think you would. You'd pick up the phone and talk about it. And in this situation, because you've got to send the letter, you're sending it anyway. But at least by having the conversation, you're putting that missing context in place, the bit that never quite comes across on an email, and make sure that everybody knows where they stand. And the other thing that is implied by this clause is an element of good faith. Now, there's been some long winded and not very interesting legal debate on the concept of good faith, and to what extent that requirement has been introduced into the NEC contract off the back of clause 10.2. And good faith is one of these lovely legal terms that doesn't really have a specific definition. So it's probably for the best that the courts aren't deciding that good faith applies to the NEC contract, certainly wholesale, because this would just be introducing a woolly obligation which would no doubt be wheeled out at opportune moments to say, you're not doing this and that, and so you're not acting in good faith.
Jacob Austin (00:13:27) - And that would completely go against what the NEC are trying to achieve, in my opinion, with their contract, because it's really clearly written. There's little room in there for weasel words and for wriggling out of obligations. So rather, what this clause is asking you to do is to put your trust in the other party, and of course, vice versa, and collaborate with each other to achieve a successful outcome. And that should mean disclosing issues and talking about them to resolve them, cooperating with each other and knowing and understanding the bargain that both of you have struck by entering into the contract. And in doing this, this implies working with each other rather than exercising some of the contract mechanisms against each other so that you get to the end together, rather than kicking lumps out of each other along the way. And it's that collaboration that is vital to the success of the project, and also for the contract's effectiveness, the overall aim being to preserve relationships whilst you both comply with your contractual obligations. And this is the mindset that you need to get into to operate your neck subcontract.
Jacob Austin (00:14:36) - So hopefully you'll find that of use. My mission is to help the million SME contractors out there working in our industry. If you've taken some value away from today's show, I'd love it if you'd share the podcast and pass that value on to somebody else. And of course, subscribe yourself if you haven't already. Thanks for tuning in. If you like what you've heard and you want to learn more, please do find us at www.QS.Zone where you can subscribe to our training and support system for like minded subcontractors. In there you'll find templates, how to videos, interviews, and more. It's less than the price of a cup of coffee per day, and you can cancel any time. We're also on all your favourite socials at @QS.Zone. Thanks again. I've been Jacob Austin and you've been awesome.
