This article provides an update on advice and best practice for implementing Early Contractor Involvement (ECI) on an NEC4 Engineering and Construction Contract, and accordingly draws on NEC’s first published drafting for ECI in November 2015 and the latest NEC Practice Note[1].

Introduction

NEC 4 practice note

The NEC’s decision to publish further guidance recognises the growing popularity and maturity of two-stage tendering in the UK construction market.

The guidance considers:
•  The characteristics and potential benefits of ECI.
•  Key success factors.
•  Advice on procurement best practice and setting the target price for stage two of the contract.

Background

In most standard building contracts, the contractor is procured relatively late in the process (RIBA Stage 4) when key decisions on design and construction methodology have already been taken by the employer and design team.

ECI is an alternative procurement strategy that introduces the contractor at an earlier stage (RIBA Stage 3) to utilise the skills of contractor and its supply chain and help drive greater efficiencies.

ECI has long been recognised as a method for reducing risk and increasing buildability through collaborative working, pre-construction planning, design scrutiny, and true value engineering to deliver optimal value for money.

With continued ongoing and future impacts from Covid-19, Brexit and climate change to the availability and costs of materials, resources and energy, the need for careful pre-planning of all construction projects has never been more relevant.

ECI is a secondary option (X22) available for use with the NEC4 Contract (Options C or E). The parties enter into a single two-stage cost reimbursable contract to collaborate in developing the project, including design and planning for construction (Stage One), before progressing to the main construction phase (Stage Two).

The NEC Practice Note assumes the Contractor being responsible for the design and the use of an ECC Option C Contract.

Characteristics and potential benefits

ECI is appropriate for all types of construction projects but complex projects involving challenging construction methodologies, where a dedicated pre-planning phase is crucial, offer the greatest benefits.

The use of ECI contracts assists in delivering better value for money for clients by:

• Focusing the delivery team on the client’s objectives and business case benefits from the outset.
• Achieving improved safety, quality, and environmental performance and developing more robust and reliable programmes and budgets.
• ECI contracts provide a dedicated design and construction planning stage that allows the contractor to consider the integration of designs to optimise buildability, manage construction risks, and to test proposed construction methodologies with its supply chain.

Key success factors (KSF)

KSF 1 Client Capability

The client needs to have access to the expert resources required to procure and manage an ECI contract, including appropriate commercial expertise to support the client team.

KSF 2 Design Strategy

The design strategy needs to identify the optimum design maturity level required for tender purposes.

KSF 3 Adequate Budget

An ECI contract with secondary option X22 requires the client to set the budget, including an adequate allowance to cover both client and contractor risks (potential compensation events). See KSF 1 above.

Procurement of an ECI contract

The NEC Practice Note sets out advice on procurement best practice and setting the target price for Stage Two of the contract. The advice, consistent across all NEC forms of contract, focuses on developing integrated collaborative teams and processes to best deliver the client’s requirements.

The NEC recommends the client considers the timing of the ECI contractor appointment before a planning application is made. Not all clients will have pockets deep enough to consider appointment of the contractor during the pre-planning phase (RIBA Stage 2), so it comes down to a balance of risk and opportunity.

The client will need to determine the percentage that will be paid to the contractor of any savings made against the budget. The percentage should be sufficient to incentivise provision of the contractor’s best team, through construction planning during Stage One, and efficient and effective risk management.

At the end of Stage Two, the project manager issues a notice to proceed when the requirements set out in X22.5 have been achieved.

If Stage Two is not to proceed, the Project Manager must issue an instruction removing that work from the Scope. If the prices for Stage Two cannot be agreed upon, the client can use the Stage One information to retender for the remaining Stage Two work.

The NEC Practice Note provides additional details to the overview provided here. It is a practical, useful, and timely update for any client, contractor, or project manager considering using an NEC4 ECI contract.

---

[1] Link to NEC Practice Note –  NEC4 ECI Practice Note

As first published in Construction Law Journal, Volume 38, Issue 3, 2022

Introduction

Much has been written about what form of delay analysis is best suited for determining extensions of time or delay-related compensation claims in formal dispute resolution. Perhaps just as much ink has been spilled reporting upon court judgments where delay expert witnesses have been found to have fallen below required standards or have provided evidence that was of little or no use in determining the issues.

This article does not offer views on what form or forms of analysis are appropriate, but instead explores points that a delay expert witness may wish to consider in determining how best to approach his or her task, with a view to providing the court or tribunal with the best possible expert assistance.

This follows my recent article ‘What does a court or tribunal want (and not want) from a party-appointed quantum expert witness: perspectives from a practising expert and arbitrator’ .

I shall explore the subject under the following headings, before drawing the threads together:

1. The duties of an expert witness.
2. Independence and compliance with ‘the rules’.
3. An appreciation of the underlying contractual and legal framework.
4. Understanding differences of approach required in analysing excusable and compensable delay.
5. Distinction between the facts and expert opinion evidence.
6. Addressing the parties’ factual cases.
7. Matching the form of analysis to the dispute.
8. Prospective or retrospective analysis.
9. Identification of the critical path.
10. Early agreement on key aspects of any delay analysis.
11. Joint statements.
12. The art of explaining a complex factual matrix in simple terms.

As first published online in the RIBA Journal, November 2021 – Read the corresponding RIBA journal article

According to the Construction Products Association, by May 2021 construction output began to surpass pre-pandemic levels and in 2022 is forecasted to rise 6.3%[1]. This positive outlook is underpinned by the expected growth in key sectors, such as housebuilding and infrastructure through the government’s commitment to invest £600 billion over the next 5 years as part of its “Build Back Better” programme.

Whilst employers and contractors will be buoyed by the investment and forecasted recovery, they will need to tackle this rising demand with the dual constraints of the growing skills and materials shortages.

Shortages in materials have been widely reported by market commentators in recent months. Whilst it is difficult to determine the specific causes, various issues have been identified.  

• Brexit – reluctance to trade with the UK due to perceived issues regarding regulation, processing of imported goods and materials, customs etc.
• Covid – factory closures and new working practices reducing output within the UK and internationally
• A shortage of shipping containers further impacted by the blockage of the Suez Canal
• Global shortages of supply of core materials, such as timber, steel, and cement.
• Large infrastructure projects, such as HS2, are monopolising available supply

As for labour, there has been a growing shortage in skilled labour over the years, which has been recently accentuated by the fall in EU-born workers from the UK market, as many leave the UK[2].

Given these current market conditions, is the construction sector entering a perfect storm? If not, it certainly has many challenges to navigate to allow it to prosper.

Throughout the pandemic, the government has endeavoured to support businesses by deploying a series of financial incentives and fiscal measures such as the furlough scheme, government-backed loans and the deferral of tax payments. As a sector, it seems that construction has benefited; as reported by the British Business Bank, the construction sector was one of the biggest recipients of funds, having received the highest proportion of total Coronavirus Business Interruption Loans and Bounce Back Loans, with £2.5 billion and £7 billion of loans offered respectively[3].

In addition to these supporting incentives, on 26 June 2020 the government also introduced the Corporate Insolvency and Governance Act 2020 (“CIGA”) in an attempt to protect businesses in financial distress as a result of the pandemic. Whilst originally set to expire in November 2020, due to the continued impact of the pandemic, the protective provisions have been extended to 30 September 2021.

The key provisions of relevance within this statute can be summarised as follows.

Permanent Reforms

Restructuring Plan – This plan provides a company in financial distress the opportunity to agree a restructuring arrangement with its creditors.

Moratorium – this “freeze” is intended to provide companies with a formal process to explore and develop a viable restructuring plan. Importantly, it also offers the company in question legal and enforcement protection. It is worth noting that, whilst the company remains under its own management during this moratorium period (initially 20 business days but with the ability to extend by agreement or as ordered by a court), an insolvency practitioner is appointed to help protect creditors and provide some supervision.

Termination – This provision seeks to limit the ability of a supplier from terminating the contract in the even that a company becomes insolvent.

Temporary Reforms

Statutory Demands and Winding-Up Petitions – this provision removes the threat of winding-up petitions as a means of debt collection, and to protect a distressed company as it seeks to explore other trading options.

Moreover, it is also worth noting that through the Construction Playbook, the government has also attempted to reinforce the principle of prompt paying for all suppliers, and in turn its supply chain, in order to safeguard the delivery of public sector projects and programmes.

In support of this fundamental provision, public sector employers, such as Network Rail, led the way by implementing other methods of relief for any “at risk” suppliers within its supply chain with the use of the following measures to be considered on a case-by-case basis – immediate payment terms, advanced payments, increased frequency of payments, relaxation of relevant contractual terms and the payment of reasonably incurred additional costs arising as a direct result of COVID-19.

According to recent commentary, it seems that the above fiscal, legal and commercial measures have had a positive impact as there has been a dramatic reduction in the insolvencies from 3,228 in 2019, to 2,042 in 2020.[4]  

Whilst such support and protection provided by the government and enacted by public sector employers should be applauded, there is a danger that such measures have only delayed the inevitable. Are a number of these businesses unlikely to recover from the pandemic and, have they in fact, become “zombie” companies?

If this is the case, as we start to take tentative steps forward with the removal of the COVID-19 restrictions, and as the fiscal and legal support noted above are gradually phased out, there is a risk that such zombie companies may struggle to fend off insolvency, and that insolvencies will begin to materialise in the tail end of 2021 and into 2022.

Consequently, it is important that companies are alert and monitor their supply chain so as to protect themselves from any failures with their supply chain. In terms of protective measures, it seems that both employers and contractors alike are seeking appropriate guarantees, warranties, and bonds throughout their supply chains. We are also aware that a greater level of financial due diligence and scrutiny is being imposed throughout the market in order to validate the financial well-being of suppliers.

Notwithstanding these protective measures, constant monitoring is vital. However, early visible signs of financial distress can manifest themselves in a number of ways; for example,

• A high turnover of staff.
• A general decrease in labour on site.
• A slowdown in the progress of the works or the works not achieving project timescales or milestones.
• Poor quality workmanship and/or an increase in defects.
• Removal of plant, equipment and/or materials from site.

Also, as a consequence of its financial hardship, a company may take certain actions to improve its cash flow which may be a cause for concern. These may include:

• Requests from the contractor for changes to the payment mechanism.
• Inflated applications for payment and/or unsubstantiated claims.
• Complaints from sub-contractors regarding payment.
• A lack of response to correspondence.
• Late filing of statutory accounts and annual returns.

If any of these warning signs start to manifest themselves, and the risk of insolvency for a company increases, it is essential that it acts quickly to protect itself. There are some simple “do’s and don’ts” that can be adopted to help safeguard the company’s position and ensure that it does not fall victim to a number of pitfalls. 

For example, without taking legal advice, the ‘don’ts’ include:

• Not terminating, novating or assigning contracts.
• Not appointing a new contractor to carry out relevant work.
• Not paying sub-contractors directly.
• Not making advance payments or paying for off-site materials.

Notwithstanding risks attached to the potential insolvency of a supply chain member, there are pre-emptive steps that a company could adopt to prepare and ready itself. These include:

• Ensuring that it has a complete set of contract documents (including warranties and guarantees) as it is often the case that these documents are not conveniently stored and /or are incomplete, which causes problems.
• Establishing a full list of the contractor’s management team.
• Identifying sub-contractors that are critical to the timely completion of the works, and checking whether collateral warranties are in place.
• Clarifying its rights and obligations in the event of an insolvency, such as seeing if it has step-in rights.
• Scheduling and, if possible, safeguarding any plant, equipment and materials that it has paid for.
• Getting the paperwork in place. Instigating full monitoring of progress and determine the scope and value of the work remaining – mark up drawings, take photos, and so on.
• Preparing a contingency plan in the event of the contractor’s insolvency (in the form of identifying other suitable suppliers, identifying critical supply chain members and materials, etc).

It remains unclear as to how the construction sector will respond to the challenges of the current climate as the government support is eased but it is imperative that firms remain vigilant.

---

[1] Construction Products Association Summer Forecast

[2] See https://cityam.com/brexit-exodus-uk-construction-staff-shortages-leads-to-project-delays-and-fewer-new-homes

[3] See https://www.british-business-bank.co.uk/coronavirus-loan-schemes-continue-to-support-businesses-evenly-across-the-uk-new-analysis-shows

[4] See https//www.constructionnews.co.uk/financial/there-is-going-to-be-a-massive-bang-the-coming-rise-in-insolvencies-18-02-2021

…

As we all know, a large proportion of construction disputes revolve around delay.  A fundamental part of dealing with these disputes is getting to grips with the construction programmes.  It is beyond dispute that that the critical path activities must ultimately be affected by an excusable event to result in an extension of time.  Consequently, access to the native electronic programme files, although not imperative, is of considerable assistance in determining more reliably where the critical path sits.

The importance of a reliable critical path has been highlighted in a number of cases before the courts.  In complex projects it is often near impossible to determine this without native programme files.  The problem was addressed in Mirant Asia Pacific Construction (Hong Kong) Ltd v Ove Arup and Partners International Ltd [2007] EWHC 918 (TCC) where His Honour Judge Toulmin CMG,QC said:

”In the helpful work, Delay and Disruption Contracts by Keith Pickavance (LLP 2005), the author makes the point that the Critical Path Method requires detailed and sophisticated analysis and that in complex projects it is unlikely that a critical path can be identified inductively, i.e. by assertion. “It can only reliably be deduced from the mathematical sum of the durations on the contractor’s programme to be completed in sequence before the completion date can be achieved.” This is an important cautionary word in this case where a number of witnesses were convinced, without the benefit of any such analysis, that they knew where the critical path lay.”

…

”Without such analysis those controlling the Project may think they know what activities are on the critical path but it may well appear after a critical path analysis that they were mistaken. [emphasis added]”

Typically, when delay arises, the contractor makes the running by preparing a claim supported by some form of delay analysis reliant upon various versions of the programme.  The contract administrator or employer reviews the claim, and if they do not already have them, may ask for native versions of the programmes which the contractor has used.

I have been involved in preparing and reviewing claims where the contractor has flatly refused to give native files to the other side and I have often thought about whether this prejudices his position.  My instincts always tell me that in any dispute you need to occupy the “moral high ground”.  Withholding native programme files suggests you are deliberately hiding something.

Sometimes contractors feel that their programmes are somewhat less than perfect, and any imperfections may be exposed if native files are provided.  All programmes are imperfect: that is the nature of the beast. 

Occupying the moral high ground is all very well, but it is a rather abstract convention.  Is there a more compelling reason to provide native programme files to the other side in a dispute?

This particular matter was considered in Eurocom Limited v Siemens PLC [2014] EWHC 3710 (TCC) although it was somewhat of a subsidiary issue.

Siemens was defending a delay claim from Eurocom.  The dispute resulted in an adverse adjudicator’s award, and in challenging the adjudicator’s decision, Siemens argued that the adjudicator breached the rules of natural justice when

he, amongst other things: “… failed to order Eurocom to produce native versions of the programmes on which it had based its delay case so that Siemens could properly respond.”

This of course raises the issue of what are the rules of natural justice?  At their highest level they have been formulated as follows:

• nemo judex in suo causa – the judge/arbitrator/adjudicator should be impartial with no interest in the outcome (Dimes v Grand Canal (1852) 3 HLC 759); and

• audi alteram partem – a decision should not be taken without all parties being heard (Ridge v Baldwin 1964 AC40).

The law reports are littered with judgements whereby arbitrators or adjudicators have been said to have breached the rules of natural justice.  The cases are particularly fact sensitive covering a wide range of problems such as excluding evidence, timing of hearings, conflicts of interest, etc.

Returning to the Eurocom case, the Honourable Mr Justice Ramsey only briefly considered the matter of native programme files, saying (at paragraph 125):

“I do not consider that the absence of programmes in native format can found a basis for breach of natural justice.”

Regrettably the judge did not expressly give his reasoning, but what can be distilled from other parts of the judgment is that he seemed to be of the view that Siemens had adequate documentation and time to deal with the issues raised by Eurocom without the need for native programme files.

“The time periods were short and, in particular the need to work over the Christmas/New Year period put pressure on Siemens. However, having considered the responses and submissions which Siemens put in, it can be seen that they were able properly to respond to matters raised by Eurocom.”

Of course, as with other natural justice claims, this turns upon its particular facts, so laying down hard and fast rules about refusing to provide native versions of programme files requires careful consideration.  If there is a demonstrable refusal to provide native files an adverse inference may be drawn by the tribunal.

Regardless of all these considerations, the first port of call is always the contract since that may well stipulate which programmes must be provided and in which format, both throughout the progress of the works and in support of any claims. 

One final and perhaps overriding thought: the burden of proof rests with the contractor and he must prove his case on the balance of probabilities.  Does the absence of native programme files lessen the chances of the contractor discharging that burden?   It is often a fine balancing act, but the issue is not an absence of programmes, but an absence of native programme files. It is the contractor’s prerogative to decide the scope of evidence upon which he will rely to support his claim and, in many instances, (particularly for less complex projects) the hard copies of programmes are often sufficient.

If you require any further information, please contact David Gainsbury at davidgainsbury@hka.com.

---

About the author

David Gainsbury has over 40 years’ experience working in the construction industry.  He has been involved in disputes dealing with a wide range of projects across all sectors of the industry including on-shore and off-shore oil and gas projects, power generation, civil and building works.

David works substantially on high value contentious matters including preparation and review of claims and litigation and arbitration support.  He has been appointed as an expert witness on a number of occasions including giving evidence in court. 

David has wide ranging experience of delay and disruption analysis techniques and is proficient in the use of various software packages including Primavera. 

He has worked on projects in Australia, Brunei, China, Denmark, Egypt, France, Germany, Greece, Guadeloupe, India, Ireland, Italy, Malaysia, Poland, Singapore, Spain, South Korea, Turkey, the United Kingdom and throughout the Middle East.

Sustainability has long been an integral part of a structural engineer’s process in building design, be that adhering to the (limited) parameters we can influence in whichever set of targets might apply – BREEAM, LEED, EcoHomes, and so on – to understanding the relative merits of typical materials and advocating for the ‘least damaging’ option. The IStructE include a knowledge of the environment as one of the objectives all engineers wishing to be chartered professionals must satisfy. With the structure responsible for up to 50% of the embodied carbon of a given development, it makes sense that we as engineers should appreciate and be able to consider the comparative carbon footprint of the solutions we develop.

But as climate change continues to dominate both headlines and agendas across all kinds of built environment stakeholders from the government to private developers, the industry is looking to itself to identify ways in which common practices might help tackle the climate emergency. The IStructE has setup the Structural Engineers declaration[1], inviting structural engineering professionals and firms to consider the climate emergency and join the collective effort to achieve net zero carbon emission in the UK by 2050.

Here are four ways explored or championed by the engineering community.

Stop demolishing existing stock

“Reduce, Re-use, Recycle” is surprisingly applicable to entities as large as buildings. While the construction industry can and has concentrated on these as they apply to individual materials (demolition waste, steel production byproducts), there has been a renewed focus on reuse of existing building stock that has the potential for a greater impact. One of the authors of a report[2] steered by the Royal Academy of Engineering released earlier this year said “Our biggest failure is that we build buildings, then we knock them down and throw them away. We must stop doing this.” That report added its voice to the Architects’ Journal RetroFirst[3] and the RICS, both of whom in 2020 called for a reduction in demolition because of the huge amounts of carbon emitted during construction of new builds. That was estimated by the RICS to be up to 35% of the building’s total lifecycle carbon for typical new offices (51% for residential), and has been shown to dwarf the carbon savings presented by building a new energy efficient equivalent (the carbon debt payback period being ‘decades’ that we potentially do not have).

Figures like that demonstrate the potential impact of reusing even some of an existing building, from foundations to facades. Maximising the use of existing building and infrastructure stock, or even keeping an open mind as to how far an existing building can be adapted to suit current purposes, will reduce the need for new construction, with all the embodied carbon that entails.   

Several leading bodies within the construction industry have published guidance on the recycle or reuse of materials. For instance, the Steel Construction Institute has published relevant guidance[4] in structural steel reuse. Likewise the Concrete Centre has published guidance[5] on material efficiency, reuse and so on.

Enhance efficiency

Our structural design codes are compiled so as to ensure the adequate safety of structures, with significant margins (for understandable reasons!); our design process is often streamlined to save time, ensure repetition and conformity, and in combining the two to save cost. This can add up to thousands of tons of redundancy being built into structures. Design efficiency can take many forms, from choosing to design each individual element (as opposed to one ‘worst case’ that can be applied to all similar entities, a practice all structural engineers will be familiar with), to looking more carefully at or revisiting the load assumptions made at earlier design stages and seeing where savings in material could be made. At the extreme, engineers are debating whether and where the current prescribed loading and safety factors might be reduced so that efficient and sustainable design is compatible with safety. Debate rages on, as seen in the recent pages of the Structural Engineer.  

Consider embodied carbon

The IStructE in response to the climate emergency and promotion of net zero carbon design, published in August 2020 guidance[6] for calculating – and minimizing – the embodied carbon in construction projects. The guidance also points to alternative concepts of achieving a sustainable design for example use of local stock of materials where possible to reduce emissions from transportation, use of sustainable concrete mixes with cement replacement products leading to reduced cement content and respective carbon emissions, use of materials with reduced embodied carbon such as timber etc.

This is becoming a key part of the design process as an increasing number of engineering consultants commit to contribute to the goal of achieving net zero carbon emission in the UK by 2050. Further details can be found in this link:   https://www.istructe.org/resources/guidance/how-to-calculate-embodied-carbon/

Use BIM

By no means considered new anymore, Building Information Modelling or BIM is now the standard across many large infrastructure projects. The ways BIM can contribute to sustainable construction are remarkable and ever more innovative. As a designer, the advantages of BIM in allowing design changes to be accommodated quickly, fluidly, and with full visibility across the design team are clear: with the process of change made easier and more reliable, efficiencies and improvements are more likely to be made. Clash detection and improved design coordination minimizes later changes, reducing material use, and can reduce over-ordering. BIM can also make easier the process of retrofitting or reusing existing building stock, which has huge benefits to the environment already discussed.

Further than that, BIM over the lifecycle of a building can contribute hugely to reducing carbon footprint. Provision of BIM models in place of as built information gives owners and operators greater flexibility and ability to continuously monitor performance and make adjustments. Technologies like Digital Twin even enable measurement and testing of maintenance strategies in advance, again driving efficiency.

These are just three examples of how the fundamentals of design are changing or at least being questioned, in order to contribute to the tackling of climate change. With construction still responsible for 39% of the world’s carbon emissions, there is a long way to go but the industry is ambitious: the World Green Building Council has set out a vision for 100% net zero emissions buildings by 2050 and a 40% reduction in embodied carbon emissions.   Go to New report: the building and construction sector can reach net zero carbon emissions by 2050 | World Green Building Council (worldgbc.org) for more information.

If you require any further information, please contact Helen Collie at helencollie@hka.com.

---

[1] https://www.structuralengineersdeclare.com/

[2] Decarbonising construction: building a new net zero industry, link: https://www.raeng.org.uk/publications/reports/decarbonising-construction-building-a-new-net-zero

[3] https://www.architectsjournal.co.uk/news/introducing-retrofirst-a-new-aj-campaign-championing-reuse-in-the-built-environment

[4] SCI Publication P427 Structural Steel Reuse, 2019

[5] Material Efficiency, Concrete Centre, 2018

[6] How to calculate embodied carbon, IStructE, version 1.0 August 2020

---

About the authors

Helen Collie is a structural engineer with 15 years of construction industry experience. She is a specialist in forensic engineering work, having been appointed as a technical expert on six occasions and having assisted the named expert numerous times.

Helen has produced, or supported the production of, expert reports for claims regarding property insurance payments for earthquake and fire damage, issues of design liability and professional negligence for large sports and infrastructure projects, alleged poor workmanship, materials and specifications defects, and construction defects. She has been cross-examined in arbitration and is experienced in litigation support.