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NEC Term Service Contract

Places greater emphasis on seeking final agreement earlier, rather than on the accuracy of cost determination. Part of the NEC family of documents. Currently only available in draft form, with publication scheduled for late 2003, possibly April 2004. Requires the parties work together in a spirit of mutual trust and co operation. A failure to do so is a breach of contract. Contains clear mechanisms and response times, designed to stimulate good management by both parties to the contract. The NECs Early Warning and Compensation Event mechanisms are used to resolve matters amicably and quickly, thus avoiding or minimising the development of adversarial attitudes by both parties. The Contract is administered, on behalf of the Employer, by the Service Manager. As far as is known, no NEC Contract has gone to Court or Arbitration in its ten-year history, because of its successful dispute resolution mechanisms. Written for clarity using straightforward language and simple structure. Written to deliver a stated service, which is maintaining an asset in its existing state for a given price, (although Task Orders may be used to deliver small improvements) rather than the delivery of a project or series of projects.

ICE Term Version

Places greater emphasis on protecting the legal positions of the parties, rather than on the resolution of their differences. Based on the traditional form of ICE Contract. Currently in its first edition, published in September 2002. Does not formally require the parties work together in a spirit of mutual trust and co-operation, but acknowledges the benefits of team working. Lacks the proactive management procedures of the NEC TSC.

This form has no formal mechanisms that encourage the parties to work together to resolve problems, or resolve disputes quickly.

The work is supervised and certified by the Engineer, who is appointed by the Employer. The ICE forms are supported by a long history of case law.

Lacks the clarity and simplicity of the NEC TSC. Written to allow the Employer to obtain fixed prices for a wide range of activities for which there is a general need, but where the quantity of the need is uncertain, and to call off these activities as necessary by issuing Works Orders.

Payment may be made through one of the following options: Priced Contract (Admeasurement) Target Cost Contract Cost Reimbursable Contract Certain defects, such as omitted services, can be handled through reduced payments Can, with the use of NEC Option X12, be made compliant with the recommendations of The CIC document Guide to Project Team Partnering Does not comply with the Housing Grants, Construction and Regeneration Act 1996. Payment is based on admeasurement, but can include: Lump sum payments for defined elements of work Cost plus arrangements for ill-defined work

There is no facility to handle certain defects, such as omitted services, through reduced payments. Cannot be made compliant with the recommendations of The CIC document Guide to Project Team Partnering Does comply with the Housing Grants, Construction and Regeneration Act 1996.


Introduction The MF/1 is a form of contract that is quite widely used for the supply and erection of all forms of electrical, mechanical and electronic equipment. It has been continually developed and has been widely used for the local authority lighting for many years. It is published jointly by the Institution of Electrical Engineers (lEE) and the Institution of Mechanical Engineers (IMechE) and is endorsed by the Association of Consulting Engineers. The main objective of the contract form appears to be to ensure the fair and equitable behaviour of both parties to the contract. The MF/1 is part of the joint IMechE/IEE MF family of Model Form contracts, consisting of: MF/1 Home or overseas contracts for the supply of electrical, electronic or mechanical plant - with erection (it includes a form of subcontract). MF/2 Home or overseas contracts for the supply of electrical, electronic or mechanical plant (it includes a form of subcontract and a form of supervision contract). MF/3 Home contracts for the supply of electrical and mechanical goods. MF/4 Terms and conditions for the engagement of engineering consultants. Observations Although the MF/1 was amended (4th Edition) in 2000, the last major revision took place in 1988. It was first launched in 1903 and, although it has continually evolved since, it is not based on what is generally accepted today as best practice. The authors advise that, at present, they have no plans to modify the form to introduce partnering procurement concepts. An Engineer is appointed and paid by the Employer to manage work under the MF/1 and has a duty to act fairly between the parties, when, for example, valuing variations. In this respect it is very similar to the traditional ICE forms and, as such, has been known to stimulate adversarial behaviour between the parties. The MF/1 uses conventional legal language with the use of shall to impose obligations. The MF/1 is intended for the construction of new work, not term maintenance. The payment options are therefore restricted to lump sum payments or, by means of a set of standard amendments, bills of quantities. There is no facility to pay for services provided to date, as in the NEC Term Service Contract.

Aspect of Contract The contracting culture Comparisons between the NEC TSC and MF/1 NEC TSC MF/1 The language, layout and management systems Based on traditional relationships, defensive are unquestionably modern in approach and risk management and seeks conservative, commitment to best practice. It will therefore incremental improvement. It will appeal to particularly appeal to clients who are actively clients who have not had problems in the pursuing best value for money and continuous past and are comfortable in using a improvement. document familiar to the contracting parties. Makes working together in a spirit of mutual trust and co-operation an obligation. While it is difficult to force people to co-operate if they dont want to, this up-front declaration in the first clause of the contract does seem to be effective in encouraging co-operative working. MF/1 does not have any equivalent clause and if users want to emphasise co-operation, they will need to amend the contract or write a partnering process into the contract.

Working together

Managing the contract

The Project Manager is the clients agent, and the The Engineer acts independently under a client has total flexibility in how the project number of clauses. This can limit flexibility management is organised. and client control, and real contractor benefits are often illusory. The contract procedures are designed to encourage looking ahead to solve problems and reduce risks, on the basis that it is only possible to plan to manage what happens in the future, not what has already happened. Contract procedures are based on traditional liability driven incentives to perform. There is no procedural obligation to jointly solve problems.

Aspect of Contract NEC TSC Certainty of outcome no nasty Early warning process requires either party to surprises notify the other promptly if they become aware of something that will increase cost, delay the programmes, or impair performance of the service. This is an extremely powerful tool to ensure both parties have, at every stage, the best possible understanding of the likely performance of the service. Variations (which are not limited by value) and claims have a common procedure in the NEC TSC and are known as compensation events. A logical process of notification, assessment, acceptance, and implementation is included. Compensation events are intended to be priced as soon as possible after they occur, in real time so that for complex events both parties can participate in managing costs that have yet to be incurred. Once a compensation event is accepted, the price is not normally varied, and hence both parties are aware of the final price as early as is possible. MF/1 There is no equivalent here and without such an obligation there is no need for either party to help the other. With goodwill this need not necessarily be a problem, but there is no incentive for the parties to exhibit goodwill. The omission of such a requirement in the MF/1 is not helpful.

Variations may be instructed provided the contract price does not change by more than 15%. Unless the contract has a relevant schedule of prices, the Engineer has to decide on a reasonable price. If work is instructed before a price is determined, the Contractor must keep records. There is no requirement for the Engineer to value variations promptly and valuation may be delayed until the work is complete.

Aspect of Contract NEC TSC A list of acceptable compensation events lets both parties see where risks lie. Claims that are not on the list of compensation events will not be valid. Compensation events must be notified promptly and go through the same real time cost/method/ product assessment process as for variations. Thus both parties have the earliest understanding of final contract costs and can influence resolution of the problems created by the event leading to the claim. MF/1 Claims are required to be notified to the Employer within 30 days of circumstances arising which may lead to the claim. The Contractor is then required as soon as reasonably practicable after the notification, and not later than the end of the last defects liability period, to give full details of the claim. There is no method assessing the claim provided and in practice details the claim may often not be known by the Employer until the end of the contract. MF/1 uses special conditions to allow interim and progress payment, or by measurement. It is presumed that employers will often need to amend the model text to meet their particular requirements. Fewer options are provided and these are less integrated into the contract than for the NEC TSC.


The NEC TSC payment process assumes a regular assessment of the payments due to the Contractor, but the outcome from this varies between the main pricing options. Thus an Employer can choose between paying lump sums for completion of defined activities through to regular cost reimbursement. The target cost option provides regular cost reimbursement of cost incurred with an end of contract exchange of the resulting pain/gain share.

Force majeure

The NEC TSC does not use or define force Force majeure is defined and parties may be majeure and except as provided by the excused of performance. compensation event procedure, risks rest with the party affected.

Aspect of Contract Settling disputes NEC TSC The NEC processes are specifically designed to prevent disputes before they arise, but if this fails an arbitration procedure is included. As there is no provision for adjudication, modification will be necessary if the Housing Grants, Construction and Regeneration Act 1996 (HGCR) applies. Options chosen by the Employer pre-contract allow appeal to a tribunal. The tribunal may be any pre-selected form of dispute resolution (including arbitration). Many users choose to go straight to the courts, and select litigation as the tribunal. versus the Designed as a generic document and does not include industry or project specific clauses, which are provided as needed by the Employer in the Works Information (i.e. the specification). MF/1 If the Contractor disputes instructions, etc. of the Engineer, MF/1 provides for the Engineer to promptly respond with reasons. The response is binding unless referred to arbitration. Arbitration is provided for all disputes between Employer and Contractor. There is no provision for adjudication except in the UK if the HGCR Act applies, when a special condition is available.

General conditions specification

MF/1 is for use with electrical, electronic, and mechanical plant. As such it contains a number of clauses that are technology specific.

The use of a conventional specification, prepared for use with the MF/1 Conditions of Contract, as part of an NEC TSC Service Information section requires, inter alia, the following matters to be reviewed: Testing The NEC TSC clauses provide for testing but MF/1 has two key clauses dealing with service specific requirements must be written in tests: Tests on completion provides for the Service Information, together with full basic testing while Performance tests technical details of the tests. gives the arrangements for deciding if performance criteria have been reached. The NEC core does not distinguish performance While more detailed than the NEC, MF/1 tests as such, as they are considered part of the still requires full technical details of the generic tests, but a secondary option provides tests to be written in the specification. damages for low option performance. Software The NEC TSC, by intent, does not treat software as being distinct from other intellectual property required to allow a product to be used. If technology specific provisions need to be made these become part of the Service Information.