Tutorial Schedule
Tutorial Group A Group B Group C
28-Mar 7:00pm [Fri] 2-Apr 7:00pm [Wed] 3-Apr 7:00pm [Thur]
5th
CP 305 CP 305 LI 2407
(Group A ahead one week)
31-Mar 7:00pm [Mon] 12-Apr 2:00pm [Sat] 12-Apr 5:00pm [Sat]
6th
CP 305 LI 2301 LI 2301
(Group A ahead one week)
CONTRACT ADMINISTRATION 7th 11-Apr 7:00pm [Fri] 15-Apr 7:00pm [Tue] 17-Apr 7:00pm [Thur]
CP 305 CP 305 LI 2407
& DISPUTE RESOLUTION (Group A ahead one week)
(no lesson from 14th – 18th Apr)
24-Apr 7:00pm [Thur] 25-Apr 7:00pm [Fri] 23-Apr 7:00pm [Wed]
8th
CP 305 CP 305 LI 2407
6CN011HK Tutorial 5
Assignment Payment
Draw a timeline for the procedures for assessing and The payment procedure is found at Core Clause 5 - Payment
making interim payments under the NEC4 ECC and
comment on the documents required at each key There are differences with the payment procedure depending on
stage (Word limit: 500) what main option is used
The best way to understand the procedure is to tabulate/ list out
the various 'action dates' with cross referencing to the applicable
sub-clauses.
Start with the payment assessment date and the assessment interval
and work everything else around these.
1
Payment Payment
Clause 11.2 (22) – “The Bill of Quantities is the bill of quantities Clause 11.2(30) – “The Price for Work Done to Date is the total of
unless later changed in accordance with these conditions of the quantity of the work which the Contractor has completed for
contract” each item in the Bill of Quantities multiplied by the rate and
a proportion of each lump sum which is the proportion of the work
Remark: covered by the item which the Contractor has completed”
The payment made to the Contractor is based on the items in the Bill of
Quantities which is the bill of quantities priced by the Contractor as Remark:
changed in accordance with the contract to accommodate implemented
In the final account, the Price for Work Done to Date is the total of
compensation events and for accepted quotations for acceleration
the Prices of the final quantity of work completed
Clause 11.2 (33) – “The Prices are the lump sums and the In this way, the Contractor is paid for the actual quantities, not
amounts obtained by multiplying the rates by the quantities for those in the original bill of quantities
the items in the Bill of Quantities” Option B is a re-measurement contact
Assessing the amount due NEC 4 – Contract Data Part One
Clause 50.1 - “The Project Manager assesses the amount due at each
assessment date.” [Remark: in HKSF, Quantity Surveyor assess the amount payment]
e.g. Hong Kong dollars
“The first assessment date is decided by the Project Manager to suit e.g. monthly
the procedures of the Parties and is not later than the assessment
interval after the starting date”
“Later assessment dates occur at the end of each assessment interval
until
the Supervisor issues the Defect Certificate
the Project Manager issues a termination certificate”
To ensure a reasonable cash flow for the Contractor, the assessment
interval should not be too long
Remark:
The first assessment date is determined by the Project Manager, preferably after
discussion with the Contractor, with a view to satisfying the internal procedures of In practice most payment procedures will be based on calendar months
both the Employer and the Contractor
2
Payment Application Submit payment application
Clause 50.2 - Remark:
“The Contractor submit an application for payment to the Project The Contractor may submit to the Project Manager a draft statement
Manager before each assessment date setting out the amount the with supporting documents showing his preliminary estimated
Contractor considers is due at the assessment date. amount due by not later than several days before each assessment
date for comments
“The Contractor’s application for payment includes details of how the
amount has been assessed and is in the form stated in the Scope.” NEC ECC has no express requirements on the format of the payment
application but it is desirable to set up the format
“In assessing the amount due, the Project Manager considers an
application for payment submitting by the Contractor before the
assessment date”
Submit payment application Change in quantity of work done
Clause 50.3 - Clause 60.4 - “A difference between the final total quantity of
“If the Contractor submits an application for payment before the work done and the quantity stated from an item in the Bill of
assessment date, the amount due at the assessment date is : Quantities is a compensation event if
The difference does not result from a change to the Scope
The Price for Work Done to Date (PWDD), The difference causes the *Defined Cost per unit of quantity
to change
Plus other amounts to be paid to the Contractor
The rate in the Bill of Quantities for the item multiplied by the
Less amounts to be paid by or retained from the Contractor
” final total quantity of work done is more than 0.5% of the
total of the Prices at the Contract Date”
See also Clause 60.4 See also Clause 11.2(30)
3
Submit payment application Submit payment application
Clause 50.4 - According to Clause 50.4, in assessing the amount due, the Project
“If the Contractor does not submit an application for payment before Manager considers any application for payment the Contractor has
the assessment date, the amount due at the assessment date is the submitted on or before the assessment date
lesser of :
The amount the Project Manager assesses as due at the assessment
date, assessed as though the Contractor had submitted an application The Project Manager gives the Contractor details of how the amount
before the assessment date, and due has been assessed
The amount due at the previous assessment date ”
Remark:
Although assessments of the amount due are the responsibility of the Project
Manager, he takes account of any submissions by the Contractor and provides
details of his assessment. However the onus remains on the Project Manager
to assess the amount due even if he has not received a submission from the
Contractor
Assessing the amount due Assessing the amount due
Clause 50.5 - “If no programme is identified in the Contract Data, one Clause 51.1 - “The Project Manager certifies a payment within
quarter of the Price for Work Done to Date is retained in assessments one week of each assessment date.
of the amount due until the Contractor has submitted a first The Project Manager’s certificate includes details of how the
programme to the Project Manager for acceptance showing the amount due has been assessed.
information which the contract requires”
The first payment is the amount due. Other payments are the
Remark :
change in the amount due since the previous assessment”
This clause is designed to provide a powerful motivation on the Contractor to
submit a programme which contains the information required by the Remark:
contract
The latest dates by which the Project Manager certifies payments are
If a programme was required to be submitted with the tender, the
programme is identified in the Contract Data at the Contract Date. In this fixed (i.e. 1 week times) throughout a contract as each is related to
situation an Accepted Programme already exists and no amount can be an assessment date.
retained under this clause.
4
Assessing the amount due Assessing the amount due
Remark: Clause 50.6 – “The Project Manager corrects any
Using NEC, the timeframe for certification of payment would be tight incorrectly assessed amount due in a later payment
for the Project Manager, the Project Manager should allow sufficient certificate”
time and resources to fulfil such contract requirement
If one week is considered too short, It can be amended in Additional
Condition of Contract
Payment Payment
Clause 51.1 - “A payment is made by the Contractor to the Client if Clause 51.2 - “Each certified payment is made within three weeks of the
the change reduces the amount due assessment date or, if a different period is stated in the Contract Data,
within the period stated ”
Other payments are made by the Client to the Contractor “If a certified payment is late, or if a payment is late because the Project
Manager has not issued a certificate which should be issued, interest is
paid on the late payment ”
Payment are in the currency of the contract unless otherwise
stated in the Contract” “Interest is assessed from the date by which the late payment should
have been made until the date which the late payment is made”
5
NEC 4 – Contract Data Part One Payment
Remark:
Under Clause 51.1, the Project Manager certifies payment
within one weeks of each assessment date. Then each
certified payment should be made within three weeks of the
assessment date in accordance with Clause 51.2
e.g. With 60 calendar days
Payment Payment
Remark: Remark:
Interest is due to the receiving party, either Employer or Contractor, if The interest rate stated in part one of the Contract Data should
(1) a certified payment is not made within the stated period after the be a reliable annual base rate applicable to the project
assessment date or (2) if a payment is late because the Project Manager
has not certified it as he should, the Project Manager should :
Interest will be paid to the Contractor if there is late payment
certify payment as early as possible within the week after the
assessment date Interest is basically calculated on a daily basis at the interest
rate and is compounded annually.
before the contract date, check that the Employer is able to pay
within the stated period after the assessment date Or interest should be calculated at a simple interest rate
according to the current practice
6
Final assessment Final assessment
Clause 53.1 - “The Project Manager makes an assessment of the final Remark:
amount due and certifies a final payment, if any is due, no later than :
The deadline for final assessment date will be 4 weeks after
4 weeks after the Supervisor issue the Defects Certificate or
the date when the Supervisor issues the Defects Certificate
13 weeks after the PM issues a termination certificate ”
The period of 4 weeks allow time for the Project Manager to
“The Project Manager gives the Contractor details of how the amount
assess the cost of correcting Defects listed on the Defects
due has been assessed. ”
Certificate (Clause 45)
“The final payment is made within 3 weeks of the assessment or, if a
different period is stated in the Contract Data, within the period stated”
Final assessment Final assessment
Clause 53.3 -
Clause 53.2 -
“An assessment of the final amount due issued within the time stated in the
“If the Project Manager does not make this assessment within the time
contract is conclusive evidence of the final amount due under or in connection
allowed, the Contractor may issue to the Client an assessment of the
with the contract unless a Party takes the following actions.”
final amount due, giving details of how the final amount due has been
assessed” If the contract includes Option W1 [Resolving and avoiding disputes] a Party :
Refers a dispute about the assessment of the final amount due to the
Senior Representatives within 4 weeks of the assessment being issued
“ If the Client agrees with this assessment, a final payment is made Refer any issues not agreed by the Senior Representatives to the
within 3 weeks of the assessment or, if a different period is stated in the Adjudicator within 3 weeks of the list of the issues not agreed being
Contract Data, within the period stated ” produced or when it should have been produced and
Refers to the tribunal its dissatisfaction with a decision of the Adjudicator
as to the final assessment of the amount due within 4 weeks of the
decision being made
7
Final assessment
Clause 53.4
“The assessment of the final amount due is changed to include
o any agreement the Parties reach and
o a decision of the Adjudicator or recommendation of the Dispute Avoidance
Board which has not been referred to the tribunal within four weeks of that
decision or recommendation
NEC4 ECC OPTION B
A changed assessment becomes conclusive evidence of the final amount due
under or in connection with the contract.”
Defined Cost Clause 11.2(23) - Defined Cost
Defined cost is used to assess compensation events in all NEC4 ECC Clause 11.2(23)
main options “Defined Cost is the cost of the components in the Short Schedule of Cost
Components”
Defined cost is also used for routine payments in the cost- Remark :
reimbursable options. The Short Schedule of Cost Components is designed for assessing
compensation events
Most defined costs are real but some are based on tendered rates
The Short Schedule of Cost Components contain cost information
and percentages
supplied by the Contractor. Cost are defined in relation to people,
equipment, plant and machinery, utility charges, manufacture and
Defined cost is as stated for options A and B (priced contract) in the fabrication, design and insurance.
Short Schedule of Cost Components (SSCC) while in options C, D
Because in a Compensation Event, most likely due to a change to the
and E it is as stated in the schedule of cost components (SCC). Scope (Clause 60.1(1)), there are usually no need to include Defined
Costs component for payment for bonus, levies, etc.
8
Defined Cost Change in quantity of work done
Subject to agreement, the rates and lump sum in the Bill of Clause 60.4 - “A difference between the final total quantity of
Quantities may be used for assessing compensation events instead work done and the quantity stated from an item in the Bill of
of building up the Defined Cost of each item of work using the Quantities is a compensation event if
short schedule of cost component and then adding the Fee.
The difference does not result from a change to the Scope
The difference causes the *Defined Cost per unit of quantity
This may apply particularly for small items where calculations using
the Short Schedule of Cost Component may be unduly lengthy in to change
relation to the value of the compensation event. The rate in the Bill of Quantities for the item multiplied by the
final total quantity of work done is more than 0.5% of the
This method assumes that the rates and prices in the bill of total of the Prices at the Contract Date”
quantities are equivalent to Defined Cost plus the Fee
See also Clause 11.2(30)
Change in quantity of work done Change in quantity of work done
Remark: Clause 60.5 - “A difference between the final total quantity of
This clause only applies to changes in quantities which do not result
work done and the quantity for an item stated in the Bill of
from changes to the Scope. Why?
Quantities which delays Completion or the meeting of the
If a change to the Scope, it always a compensation event under Condition stated for a Key Date is a compensation event”
Clause 60.1(1), regardless of the effect on quantities
Remark:
Clause 11.2(30) - The amount due to the Contractor includes the
Price for Work Done today, which is based on the actual quantities A difference between original and final quantities in a Bill of Quantities is
of work done. not, in itself, a compensation event.
But, A change in quantity is not, in itself, a compensation event, a However, any difference of quantities which causes Completion to be
compensation event is triggered only by the changed quantity delayed or delays achieving a Key Date is a compensation event
satisfying the tests stated in the clause : e.g. the rate in BQ for the
item multiplied by the final total quantity of work done is > 0.5% of
the total of the Contract Sum
9
Clause 60.6 Clause 17
Clause 60.6 - “The Project Manager gives an instruction to correct a Clause 17.1 - “The Project Manager or the Contractor notifies the other
mistake in the Bill of Quantities which is as soon as either becomes aware of an ambiguity or inconsistency in
or between the documents which are part of the contract. The Project
A departure from the rules for item descriptions or division of the Manager states how the ambiguity or inconsistency should be
work into items in the method of measurement or resolved”
Due to an ambiguity or inconsistency” Remark:
Project Manager has the responsibility of instructing resolution of inconsistency in
Each such correction is a compensation event which may lead to or between documents.
reduced Prices.”
An instruction to change the Scope in order to resolve an inconsistency is a
Remark: compensation event
This may occur where an item in the bill should be deleted or amended to
comply with the method of measurement. This is one of the compensation This clause is intended to ensure that action is taken as soon as possible to deal
events which may result in a reduction of the Prices with ambiguities and inconsistencies which are noticed in the contract documents
Clause 17 Clause 17
Remark: Clause 17.2 - “The Project Manager or the Contractor notifies the
How about if the inconsistency between the Scope (Contract Data Part 1) other as soon as either becomes aware that the Scope includes
and Contract Data Part 2 Contractor’s design ? an illegal or impossible requirement. If the Scope does include
an illegal or impossible requirement, the Project Manager gives
There is no stated precedence of documents under NEC. If there are any
ambiguities or inconsistences in between the contract documents, the
an instruction to change the Scope appropriately”
Project Manager has the responsibility of resolving the ambiguity or
inconsistency in the document
If an inconsistency becomes apparent between the Scope provided by the
Employer and a design which is part of the Scope provided by the
Contractor and included in part 2 of the Contract Data, the instruction
would normally be to require the design to comply with the Employer's
Scope. Such a change would not be a compensation event
10
Price Adjustment for Inflation Proposed Instruction
Under NEC, contract price fluctuation is a secondary Option Clause 65.1 -
X1 – Price adjustment for inflation that gives the flexibility to “The Project Manager may instruct the Contractor to submit a
the Client whether to allocate the risk of inflation to the quotation for a proposed instruction. The Project Manager
Contractor states in the instruction the date by which the proposed
instruction may be given. The Contractor does not put a
The amount for price adjustment is calculated in accordance proposed instruction into effect”
with Clause X1.3, and it covers the total amount in respect of
price adjustment up to the date of each assessment.
Quotations for a proposed instruction Acceptance of contractor’s quotation
“The Contractor submits quotations for a proposed instruction within Clause 66.1 - “A compensation event is implemented when
three weeks of being instructed to do so by the Project Manager. The The Project Manager notifies acceptance of the Contractor’s quotation
quotation is assessed as a compensation event. The Project Manager The Project Manager notifies the Contractor of an assessment made by
replies to the Contractor’s quotation by the date when the proposed the Project Manager or
instruction may be given. The reply is A Contractor’s quotation is treated as having been accepted by the
Project Manager”
An instruction to submit a revised quotation including the reasons
for doing so,
Remark:
The issue of the instruction together with a notification of the
Implementation is by the Project Manager changing the Prices and the
instruction as a compensation event and acceptance of the Completion Date and/or a Key Date in accordance with the assessment of
quotation or which he has notified the Contractor
A notification that the quotation is not accepted”
If the Project Manager does not reply to the quotation within the time
allowed, the quotation is not accepted.”
11
Clause 66.2 & 66.3
Clause 66.2 - “When a compensation event is implemented the
Prices, the Completion Date and the Key Dates are changed
accordingly
Clause 66.3 - “The assessment of an implemented compensation event
is not revised excepted as stated in these conditions of contract”
Remark:
This clause emphasizes the finality of the assessment of
compensation events. The only circumstances in which a review is
possible are those stated in Clause 61.6 [compensation event are too
uncertain to be forecast reasonably]
12
