NEC4: Contractor's Value Engineering Proposals

00:00 - Introduction and welcome

Good afternoon, everyone. Welcome to this afternoon's webinar with myself, Glen Hyde from GMH Planning, and you'll very shortly meet Ben Walker from Gather and David Allen from CECA. This is our tenth webinar. We've made it to double figures, guys, so we've not been taken off air yet. 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.

But today we're focusing on something a little bit more detailed. So we're diving in to contractors value engineering proposals: how ideas can be offered up and how they may or may not change prices. What's the reason that a contractor might be proposing some of these things, and what's in it for both parties? How does NEC, particularly NEC4, allow for these mechanisms? There are some improvements and enhancements we're going to find out about today in NEC4 that we didn't see in NEC3. David, come and chat to us about CECA.

Thank you, Glenn. Hi, I'm David Allen, the executive director for CECA Southern, and I look forward to hearing more about what is probably an underutilized part of the NEC4, which is slightly counterintuitive in a world where the parties are looking to deliver more efficient and ultimately improved outcomes for all. So this is going to be quite interesting. Ben and Glen are going to put a bit more meat on the bone as we go forward, and there's going to be an opportunity for you to ask questions during the discussion.

Just a quick reminder about who CECA are: the Civil Engineering Contractors Association. We're now in our thirtieth year. It is a not-for-profit trade body representing contractors that deliver and maintain a significant part of the mainland UK infrastructure. CECA Southern is just one part of this member-led association that provides mainland UK coverage across England, the devolved nations of Scotland and Wales, and with a policy office in Westminster. We engage with governments and bodies that impact on our industry at both a national and regional level.

This series of the NEC4 webinars is aligned to our CECA upskilling and training core pillar ambitions, providing an additional layer of awareness to the suite of seminars and bulletins that we deliver around NEC4. We're really looking to increase both CECA member and the wider NEC4 user awareness, promoting the appropriate and equitable use of it. I'll now hand you over to Ben at Gather.

05:00 - What is value engineering in NEC4

Thank you very much, David. Thank you, Glenn. Good afternoon, all. Welcome to our tenth episode. Today, we're going to look at value engineering. As always, I had a little look at the origins of value. It's from the Latin valere, which means strong, worthy. It's all about what it can do, not just what it costs. Where's the value in that, not just a measure of its expense?

So we'll look at what value engineering is, and in particular for NEC it's two main directions. We'll look at the contractor's proposals under clause 16, where we are proposing to change scope the client has provided, and the implications under each of the main options as to how value is unlocked for both parties. Then we're going to look at the second type, 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 the folly in going down a completely different route. A few final thoughts and hopefully plenty of time for questions and answers.

OK, firstly, what is value engineering? This is where specifically the contractor has a good idea that requires a change to the scope. The scope document is that all-important document setting out the requirements for what we want, typically drawings and specifications, but as we know, it's also constraints. 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. These webinars are not legal advice, but I think I'm fairly safe saying it's a good idea to go and get volume two, how to prepare the ECC, and have a look at chapter three, how to write scope, an enormously useful document.

So this good idea to change that scope. The first question a contractor is going to ask themselves is, is it worth my effort? There are some pre-contract decisions the client makes and states in contract data part one which might change your appetite. One of them, if you're under options A and B, is the value engineering percentage, which can be different from the fifty percent default. The second, if you're on option C and D, is the contractor share ranges and percentages. If these are too biased in one direction, that could be perfectly good procurement rationale, but it's well worth understanding their impact on the incentive. And finally, if we're going to use option X21, it has to actually be part of our contract.

So moving sideways from is it worth the contractor's effort, let's assume it is. The next question is, is it a reduction to the payment to the contractor? If it is going to reduce the amount the contractor gets paid, then we go and have a look at clause 16, that form of value engineering. That's unique to changes to the client scope. If it's not exclusively to do with reducing the payments to the contractor, then it might be the case that it's going to 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 build cost, the cost the contractor is paid for providing those works, and it's about the client scope; and then the X21 proposal is about any kind of change to scope, and that's about reducing the operational costs. Let's have a look at the workflow for clause 16.1 in particular. Over to you, Glenn.

11:30 - Clause 16 value engineering proposals

Okay. So this is new clause 16. You might remember NEC3 had clause 16. Well, actually it was early warnings in NEC3. In NEC4 it's now clause 15, which frees up 16 to be contractors' proposals. So this is the main element within contractors' proposals. The only other element that drops in, which we don't cover today, is where the contractor can propose a change to the working area. There might be a reason they would want to add to the working areas: a new satellite office outside the boundaries of the site, for example. But that's an aside. There are 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 flow chart, the contractor makes a clause 16.1 proposal to the project manager, in writing in accordance with the contract, hopefully through your cloud based system. The project manager, by the very nature, wouldn't make a decision themselves. They go and discuss with the client. And then within four weeks, the project manager will decide whether or not they are ready to accept the proposal.

It might be such a no brainer that they say yes, we want to do this, and they will instruct it. Or if they're not quite ready to accept the proposal, the project manager can instruct a quotation, a potentially revised quotation, which again they're not then committing to. Or the project manager could decide they're not going to go ahead. So there are three options once the contractor puts forward the initial proposal: accept it and instruct it, instruct a quote, or state the reasons they don't want to go ahead. At the end of the day the project manager is under no obligation to accept this. It's offer and acceptance: however good the idea is, the client might have other reasons. So you can't force these through.

And you saw 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? Well, hopefully we're going to change that look on his face eventually.

17:30 - Design liability and X15

So the point we wanted to make here is a note on design liability. If this is an instruction changing the scope then we just need to consider, would this change the design liability? Any instruction changing the scope would be a compensation event, but it won't be a transfer of liability. So if it is the client's design and the contractor has come up with the idea, the client has got to make sure they're happy and do their own checks. There's no instant obvious change to the liability unless, for example, the proposal is to delete the client's design and replace it with something the contractor's proposing, which 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 reasonable skill and care. So in simple terms, we broadly say that the design liability would remain with whoever it was originally. This proposal is not looking to change that. So whoever 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? No, I think that covers it, Glenn.

So what we want to do now is spend a bit of time thinking about, is this an X21 or is this a clause 16? It's clearly a clause 16 because we are changing the client scope, it's a proposal to change the client scope, and it results in the contractor being paid less to provide the works. It's not as broad as the whole life cost of an asset. It's just focusing on the construction capital expenditure.

22:00 - Options A and B: the value engineering percentage

So we dealt with that express bit right at the front of the contract in clause 16 that sets out how we trigger this procedure. I want to pick up on that top right hand corner now where we're assuming we're going ahead. PM accepts the quotation and instructs the change of scope. 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.

I've highlighted options A and B because I'm going to talk about A and B in a moment; Glenn's going to talk to you about C and D. This is the answer to that question: where is the value unlocked for both parties? We leave clause 16 behind and much further on in the contract, now that we know it's going to give rise to a compensation event, we come to clause 63.12. So in the case of options A and B, 63.12 becomes relevant. And this is only relevant for this type of event where the change has arisen through a proposal from the contractor.

In this case, what might be a really big idea of maybe a four hundred thousand pounds saving. We capture that value of the compensation event and we don't reduce it to its full extent. We're going to multiply it by the value engineering percentage, which by default is fifty percent unless you change it. That's going to give us a tempered reduction to the prices of two hundred K. So for a four hundred thousand pound compensation event, we're actually going to end up with a two hundred thousand pound reduction to the prices. You've got total of the prices before the compensation event and total of the prices with the compensation event, and you can see a fair bit is left in.

Now, just for comparison, if this had been an idea purely of the project manager, come from the client, then they would have just given a clause 14.3 instruction changing the scope and the contractor would have seen the prices reduced by the full four hundred thousand. The costs should reduce by four hundred thousand because that's what 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. It's equivalent to winning a lot of work and successfully delivering it and making the typical profit on it. So 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.

Right. So that's what happens under A and B. We make the calculation as we go. It's per compensation event. And we've got to remember that the value engineering percentage is stated in contract data. So if pre-contract the client wants something other than fifty percent, they need to state a different percentage in contract data part one. However, it's well worth thinking this through because you can trip yourself up. Remember, we're dealing with a price reduction. The higher the percentage, that actually favours the client; the lower the percentage favours the contractor, because the less that price reduction is reduced, the more of the money stays in the total of the prices. So make the percentage too high and it's actually going to discourage that innovation. Remember the why should the contractor bother question: if we strip out all the benefit and all the incentive, then why would we bother?

So quick recap: we assess the compensation event exactly how we would otherwise, but before we implement it we apply the assessed value to the value engineering percentage to reduce the amount of the overall reduction, thus leaving some of the price in there. The contractor shares the value engineering percentage of that saving. Whereas if it had been a project manager's idea or come from the client directly, it would just be processed for the prices to drop by the full amount. So if you've never heard of it before, definitely go and have a read up on it. It's a really good mechanism.

So just on the final words, it's worth repeating. A higher percentage favours the client on the surface, but then if the contractor is not going to get much out of this, they're not likely to put this forward, and neither party gets any benefit. I saw very recently two clients who both set the value engineering percentage at ten percent. Now, do you think they really wanted the contractor to get nine percent of the saving, or do you think they got that completely wrong? I think they might have thought, oh, value engineering, we'll let them have ten percent of any good idea. And at that point, you would have inadvertently given them ninety.

I think we've got a question at this point. Thank you for your question, Peter. Is there a risk that the PM or client sees this saving and perhaps views the CE in a less favourable light? The initial proposal meant they are obligated to discuss this with the client, which presumably means their designers as well. We've gone through the loop of understanding the design liability. So the idea has been well considered and probed and prodded. And don't forget, all compensation events by default are assessed on defined cost: a full 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 consideration along the lines of your question would have to depart from one of those fairly transparent bits.

Yeah, I'd agree. So it shouldn't skew that. And the contractor: some people have asked me, can they just reject the proposal and then offer it as an idea themselves further down the road? But this has been well documented as the contractor having come up with the idea in the first place. With a good cloud-based system, it's very clear who's come up with that idea, and importantly, first. You can't let some time pass and then have another go. So that was A and B. Glenn, talk us through C and D because it's slightly different, isn't it?

32:00 - Options C and D: the gain-share mechanism

Yes. So we don't have a value engineering percentage in C and D; that's very unique to A and B, a new feature in NEC4. Unlike options A and B, this same mechanism did kind of work in NEC3 already. We've got clause 63.13 that says the prices are not reduced. So we don't need a value engineering 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 gain share pot, assuming you're under the target. So it will be shared whatever the percentages are within your contract data.

Now, those percentages could be a straight fifty fifty, sixty forty. Sometimes they're bandings. So for the first ten percent under the target the contractor gets fifty percent share, for the next seven and a half percent the contractor gets thirty percent share, and below that they only get a lesser share. So this value engineering might bring you into another band. You get slightly less of a saving, but whatever that saving is, is still going to be more than your fee percentage inevitably. The only time it wouldn't be worth your while is if there's a cut off and your good idea takes you into a band where you no longer get any gain share. That's the only time you would actually lose out altogether on what otherwise is a good idea.

So there can be a fairly rational reason for doing that sometimes. It's not always wise just to choose a target contract because we're not sure what we want; it does have the mechanism for sharing the risk. I'd still favour improving the knowledge about what we want, doing a few more studies. But one of the things that people feel a little bit safer doing is to cap the amount of gain share available to the contractor in case it was just a poor design from the beginning. So you can get situations where the gain share is capped quite early, and if you are making those savings and getting near that limit and then you've got something genuinely innovative, that is where it could work against you if you've been a little bit too restrictive.

Yeah, it could, but it's a good problem to have at that stage. And the client will be very happy for at least fifteen minutes; you're the best contractor in the world. So an easier mechanism, in as much as the saving that results just goes into the global pot, where that pain gain calculation is done at the end, done once. So with options A and B you know the saving you're going to get along the way, whereas the only downside is you don't get the visualisation or the reality as to exactly what you're going to get because that calculation is done once at the end. So there's a preliminary assessment done with completion of the whole works and then the final assessment with the very final application.

So the share ranges and percentages will alter the real life benefit the contractor will get. The more these configure to favour the client, the weaker the motivation of the contractor to propose that value engineering. Either party, particularly the contractor, has got to be motivated. There's got to be something in it for them. So things like project KPIs: how often have we seen KPIs that actually do the opposite of what they're trying to do? They try to add a benefit but encourage behaviours that don't construe the original behaviours that were put in place. So wrong percentages, whether the share percentages or the wrong value engineering percentage, will detract or devalue the benefit it was trying to bring in the first place.

Absolutely, and I should have said at the start, please do engage in the chat, send your questions through and we'll try and get through as many as possible. I'm particularly interested in X21 as well. You and I haven't had a huge amount of experience of X21, Glenn, but it's interesting to see what everyone else is thinking. Share the kinds of examples that you've got, without naming too many real projects, and we can put them on the screen.

Because it's not all about the works themselves. I've seen ones around some constraints that have been lifted: you were assuming you were going to allow a certain amount of settlement on an earthwork embankment and then you come up with a slightly cleverer design so the piles can resist lateral forces from uneven settlement, and suddenly you can advance. It's not always necessarily about the materials used. It could be more broadly about the scope. So worth reminding yourselves what scope is. It's more than just drawings and specifications; think a bit broader about how that client's scope might be tweaked or changed for benefit.

40:00 - Secondary Option X21: whole-life cost

Okay, let's go back to that slide 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 capital build cost. Now we're thinking about any scope that might bring about an operational benefit, so perhaps alternative local sources of power, a wind turbine or a set of solar panels, maybe a different kind of plant or machinery that could bring back some benefit in operating costs. Should we put the computers in the basement rather than the roof? 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. If secondary option X21 is in the contract, then we can go ahead and make one of these. 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. It might be one of those things that, on close inspection, if we were drafting it, we might have made 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 PM. In practice obviously you're going to be discussing this with your client.

The quotation then is a little bit broader. 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, perhaps over twenty or fifty years, an analysis of the resulting risks to the client, a proposed change to the prices, and any revised programme showing proposed changes to the completion date and key dates. Those last two bits mirror what quotations for compensation events require. 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 defined cost.

And the other thing, this comes up a second time in a minute: if the project manager's not prepared to consider the change, their ability to subsequently give that as a change is prevented. So if you decline an idea, you cannot then separately go ahead and progress with it. So you can't take an idea proposed to you earlier and attempt to remove the contractor from having some benefit. But let's look at this a little closer because the story progresses a little further, Glen.

Sure. Just on that last one, in my experience it's less likely to lead to a change in the completion date. Less likely, but not impossible. Certainly not earlier. In summary, these are spend money now to save money in the long run. Whereas the sort of value engineering under clause 16 is generally to save money, these are save money in the long run, and the likelihood is there's going to be an increased cost now. If it's cheaper and going to save money, happy days. But very often these will be a long-term saving but maybe a short-term increase in cost, which is why you would liaise with the client.

A client would be pretty miffed if their project managers accept a proposal that's going to cost them money and they may or may not agree it's going to have that long-term benefit. The client's got to be pretty confident it will give that long term benefit. If you were to install an expensive material that won't need as much maintenance, it's going to save you ten thousand pounds a year maintenance but cost you fifty thousand pounds now, and it should last fifteen years. So the client and project manager on the client's behalf has got to be pretty sure it will reach that benefit. What the project manager can't do is knock on the contractor's door in fifteen years time and say, we didn't get that saving, we want our money back. So they're going to have to be confident it will give the long term benefits the proposal is being put in place for.

So here the contractor has made the proposal, the project manager deciding would they be willing to consider the change. We've had a chat about this offline, and I said to Ben, could you see a reason why a client shouldn't include X21? And Ben's immediate answer was not really. We put a similar poll in our NEC people LinkedIn group, and it wasn't as conclusive as I thought. About fifty five percent thought yes they should always include it, but forty five percent of a fairly low number, about sixty nine, seventy people, were saying no. I can't really think why a client wouldn't want to be including it, so you might as well, because 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 contractor's proposal, myself and Ben see no reason why you shouldn't include X21. So it won't be a compensation event, and the project manager will change the prices, the completion date and any key date accordingly if that is the case. But typically in our experience, in most cases it will probably be an increase to the cost initially to save money in the long run for the client. That's what these are here mainly to encourage and introduce.

48:00 - Audience questions: clause 16 vs X21 and idea ownership

Absolutely. Got an interesting question here from Sian. Thank you for the question. 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. Off the top of my head, the change to the scope as it relates to the cost the contractor is being paid for the works fits neatly within the existing tools of NEC. But where we are considering costs beyond just provision of the works and into things like whole life costing, there might be a bigger conversation to have, with other things at play like design liability, maybe planning, health and safety perhaps.

I often wonder why health and safety, we could maybe bring that in as well. Is there an argument for health and safety in operation of something? I remember switching from internalised jacks on a bridge to boxing them on the outside, and thinking, well, that's more than just a saving for maintenance, that's actually a safety point as well. So where it's broader, and if you think of the other places NEC does this, acceleration is more of a commercial consideration, and defect acceptance as well, it's broader than a design decision. It could be aesthetics, it could be that time is of the essence and we want to move on, so we're going outside those standard contract mechanisms and it becomes more of a commercial conversation. That's my understanding of 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, Glenn?

No, I'd agree. For that reason, the three elements, X21, defect acceptance or a quote for not correcting a defect, and acceleration, are treated as: here is the offer and the project manager can't make their own assessment of those elements. If you take acceleration, the big part will be the contractor's view on risk of having to finish earlier. If the project manager could make their own view of that, it would be wildly subjective, and the contractor would be forced into doing something for a lot lower risk and would have to challenge that through dispute process. So it's one of the rare offer and acceptance, take it or leave it situations, rather than through the CE process where the project manager can make their own assessment.

The more I think about your question, I wonder whether an alternative route would have been to assess the change to the scope that triggers this as a compensation event under the normal rules. As Glenn said, it's quite likely you're going to spend a bit more money, maybe take a bit more time, to deliver a longer term benefit. And then maybe a second part, the commercial negotiation to cover the share of the value. So I can see why you might make an argument for both. I guess NEC says, if we're minded to do it, why not wrap the whole thing into a single quote? But it's a good challenge. Thanks for that question.

I've got another question from Peter Turner. What's to stop a 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. Remember, clause 13.1 of the contract is that communications must be in a form that can be read, copied and recorded, so a proposal needs to be in that form. We want to be a little cautious about having too many conversations; if it's a good one, we should be putting it in writing straight away. And then clause 16.1 is that formal documentation, the bit that was missing in NEC2 and NEC3, that express ability to make a formal proposal.

That, I think, is the answer to your question, because as long as you do that, there's a little overlap with things like early warning meetings, where you're obliged to come up with proposals and solutions, and it's still potentially a change to the scope. So there's a little thinking there about how I'm fulfilling my obligations by cooperating in an early warning meeting versus banking an idea more formally through the contract proposal logic. And then this triggers the testing clause, 63.12 and the equivalent, regardless of which of those four main options you're under: did it come from a contractor's proposal, which should be in a form that can be read, copied and recorded? And if you're using a contract management system, hopefully we can find it quickly, associate the two together and off we go. Hope that answers the question. Anything to add, Glenn?

No, that's it. So it's about documenting it and getting the idea on the table, whoever's come up with it. Because if the client comes up with the idea and it's not value engineering, it's a change of the scope to get the full benefit. So the contractor needs to document it first. You asked the question in your poll on LinkedIn about whether there's any downside to taking X21, and any downside to taking X15? Because some of these proposals 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 X15 is perhaps something that ought to be in there anyway?

What, just in case? What if they don't have a design responsibility, but we put X15 just in case something comes up that they do? It sounds a little tenuous, but I'm thinking, if we've got an idea and we're debating it, but as the client we'd rather you take the liability for that slightly different design. If X15 isn't there, then it's very difficult for the contractor to progress that proposal because they couldn't take the design liability without it being capped to reasonable skill and care. So when you're looking at your project from a procurement point of view, is there a chance we might want to make sure the liability's on the contractor, in which case X15 might be needed? 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?

Yeah, 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 would just be benign. David, did you want to come in before we jump to the next bit? You're on mute, sir. Go ahead, David.

Two aspects. Obviously you're talking about X15, but going back to X21, it all depends. If the project manager or the client's not selecting X21, the importance of that depends on the route they're taking for procurement. If you're going down a competitive bid situation, then the contractor is going to put forward the best option they've got to get over the threshold and pick up the project, and if you don't have X21 in there, any benefits they may be able to add at a later date, or any improvements in technology or awareness, will not be available; you won't be able to take advantage of that. In a way, 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, you've got to consider the risk perspective that the change may be imposing on the contractor above and beyond. X15 tailors that to a degree. But the whole process is that the change is being done on the basis of the client need and the client is still liable for that. So if you are going to change that circumstance, that needs to be fully considered by the contractor and the parties. Absolutely. I completely agree.

55:00 - How not to do it: design submissions are not a shortcut

So, I've got a quick question. Actually, I'm going to come to you, Terence, just after this next slide, because I want to briefly talk about how not to do it. This is a genuine mistake that some people make. Don't make the mistake of thinking that clause 21 contractor design submissions and the project manager's acceptance is a way through presenting a good idea. It's not the right place. A project manager's acceptance of a contractor's design is not a 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 the language of clause 21 is about submits for acceptance. It's not for approval or for agreement. So project managers, make sure you are disciplined in the use of your verbs. 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 need to be very careful. You might completely innocently be thinking, I can see the scope document wants me to do something in green. Maybe I could 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 OK. It's not. It's really not OK. And if you put blue on the finished works, you'll find the supervisor's going to be writing you a defect.

Design submission and acceptance is not a shortcut. If you've got a good idea, or you just want to change something, maybe green is much more expensive than blue, that might be an early warning, something that could impact your total costs. Alternatively, it might be a clause 16 idea if it benefits both parties. Don't think the right way to do it is through a design submission, it's not. Anything to add to that, gents?

I think we covered that one. Just emphasizing, acceptance doesn't transfer liability away; look at clause 14.1, providing the works or liability for their designs. A lot of contractors think, what's the point of accepting that, it's meaningless. But it's not meaningless, it just doesn't mean as much as they wanted it to mean. It's another pair of eyes, and it's a gateway for another opportunity, because you're not able to proceed with the works until you've got that acceptance under clause 21. But if you don't spot something, it doesn't relieve you of the obligation that the scope puts you under. That's the main point there.

58:00 - Which main option is best, and final thoughts

Thank you, Terence, for your question: as a contractor, which option is better out of A, B, C and D? Well, you probably want to spend an hour or so on the strategy behind the main options; we haven't done a webinar on this yet. There's no easy answer. It depends on the context of your project, the knowledge you have of the ground, the quality of your scope, and all of that before we get into what's the client's genuine risk appetite. Lots of people fixate on budget certainty, and there are two dynamics to that, certainty but also value, and it's very difficult to get both. Option A will give you more certainty, option B might give you better value depending on the ground and the nature of the project. So it's a big question. Do keep watching this space because we'll definitely do a webinar on this.

The various training courses out there typically spend an hour or forty minutes looking at this in detail. In terms of value engineering, I think A and B gives you a little more upfront certainty, but C and D contributes in aggregate to a gain situation. So I would say they're equally as important. Anything to add, Glenn? I would have just answered a bit quicker, Ben. I'd have just said it depends. I thought you were going to say attend one of my courses. I think with C and D, though, you have probably more opportunity to influence the outcomes.

Well, what's interesting is in C and D, in all these main options, we are required to cooperate in a spirit of mutual trust and cooperation. And if we follow the NEC procedures, in that spirit we'll also be collaborating. What options C and D do is take it a step further and say we're going to share in the risk and reward of that collaboration, which in my mind makes it partnering. And value engineering allows for a little partnering even in A and B contracts where we're sharing the risk and rewards. It is a big topic, and it also depends on what you'd have done as an alternative. Were you thinking of doing a priced contract as an alternative? There's some thinking to move you towards targets, and if you are thinking of a cost reimbursable, some thinking that might move you towards or further from targets. So it's a big topic, well worth the time. Maybe we'll do a webinar on that in the future. A good idea.

Right. I think that brings us to a few final thoughts. David, do you want to sum up for us? Yeah, thank you, Ben and Glenn. I suppose starting in the right place, before you even think about submitting some value engineering as a proposal, you need to make sure the existing scope is already clearly defined and agreed so there aren't any ambiguities if you then proceed to submit a value engineering proposal. And that in itself makes it easier for the project manager to assess and accept any proposal 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 the risk considerations when 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, balancing the commercial risk about that potential shared benefit for everyone. Once you've got past that, as Ben picked up on a few occasions, you need to make sure 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 owning the proposal from as early a point as you can.

You're also going to be using clause 16 and X21 where it is included. And we've had some discussion about whether we need to include X15 as well, which probably needs further debate. But certainly ensure that the design liability perspective is adequately considered in any proposal, because it's the contractor that's proposing a change to the client scope, but the liability should not shift. So that's where the clarity needs to remain, and the contractor doesn't inadvertently want to be adopting any liability. The change needs to stay with the client.

Also, to incentivize value engineering within a scheme, you need to have the right level of value engineering percentages included in the contract, and that will help generate the momentum to actively put forward opportunities to bring about a benefit for everyone. Ben touched on it towards the end: don't use the contractor design submission to suggest changes. You can only use a 14.3 for that, and they can't be 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 help drive genuine innovation. That's all I was going to add, Ben.

Thanks, David. Yeah, good summary. We are out of time, but we did questions during it, which is quite a nice way to do them. That leaves us to advertise episode eleven. We're going to have a little break because a lot goes into these, so trying to squeeze them in through the summer was going to be difficult. We're going to come back on the seventh of September with a topic called Communicating Correctly, looking at the eight simple rules of clause thirteen, thinking about the benefits of some of these systems and making sure we're not inventing extra defined terms that might be unnecessary. So it should be quite a good topic, Glen. Yeah, we did one of our early CECA bulletins on it, so we'll be picking up on that thread and more. A very important topic.

Well, we hope you can join us for that. In the meantime, this gets seen by about three, three and a half thousand, maybe four thousand people over the next couple of weeks following each of these going live. It's a shame we can't get the benefit of all their questions and answers as well. So if you're seeing this after the event, please do get in touch on LinkedIn and drop us some questions. I'd particularly be interested in anyone who's used X21 and what your experiences have been, because I'm very inexperienced, and it'll be really interesting to see how that's been used in practice. So that leaves us to say, bang on time, Glenn. Thank you very much, everyone, and we'll see you at the next one. Please do carry on engaging us on LinkedIn. That's bye from me. Thanks, everyone. Cheers. Bye.