NEC4 Understanding the Activity Schedule

00:00 - Introduction

good afternoon everyone and welcome to episode eight of our webinar series and time is flying um it's nearly april already so um today we're talking all about the activity schedule uh particularly under option a but also for option c as we thought it warranted a whole webinar just to focus on a very important topic and just seeing how the activity schedule what it does purpose it serves and how we need to manage it potentially during the life of the project. So that's our focus for today. You'll see David and Ben, they'll introduce themselves shortly. So I'll pass over to you and a little bit of introduction on All Things Seeker.

Thanks, Glenn. Yeah, good to be here again. I'm David Allen. As Glenn said, I'm the executive director for Seeker Southern.

And again, looking forward to this episode as I have the others that we put on around the NEC. This one on understanding the activity schedule is particularly interesting and particularly pertinent as well. Something that in reality should be relatively simple to establish and work around. And yet, however, that's not always the case.

So it's important that the parties understand both the respective intent as well as the needs of those preparing or reliant upon it. For instance, there are already huge financial burdens on a contractor just getting to the point where they're in contract. So having assurance around the operation of the activity schedule will certainly help their financial management. I know that Ben and Glenn will provide an overview around this topic shortly and that there will be an opportunity to discuss the issue shortly as well.

However, just a quick reminder about SICA before we get on with that. The Civil Engineering Contractors Association represents many of those contractors that deliver and maintain a significant part of our mainland UK infrastructure. SICA Southern is one part of a member-led trade association that is now actually in its thirtieth year. We are made up of six English regions, the devolved nations of Scotland and Wales, and have a policy office in Westminster.

We collectively engage on industry issues with governments and those bodies that impact on our industry at both a national and regional level. and you can find out more about this and our other wider activities on our SEEKA website. Today's webinar supports our upskilling and training core pillar. Whilst we already deliver a suite of online seminars around the NEC, where we look to increase SEEKA member awareness and seek to promote a fair and equitable use of this tool, this webinar will look at an element of that contract pertinent to the NEC Options A and C.

which plays a big part in determining the criteria around payments to the contractor and by increasing all parties awareness we will hopefully promote better outcomes for all so i'll now hand you over to ben from gather Afternoon all. Welcome then to episode eight. So understanding the activity schedule, what we're going to look at. Firstly, what is it?

01:30 - What is the Activity Schedule?

So we'll cover that. And also its role in main option A of the ECC. So as a priced contract with activity schedule and also its role uh in option c so price contract with activity sorry target contract with activity schedule we're then going to have a look at um how to correct revise and change it which are the three verbs we carefully found there in the contract so how do we correct it how do we revise it and when um and what are the rules around that and finally how do we change or rather change the prices in it for things like compensation events. I guess it also extends to acceleration and defect acceptance as well, but we'll stick with compensation events for that bit of the topic.

Then once we're looking at changes to the prices, how do we propose those prices are changed in the context of an activity schedule? So what does that look like in that? clause sixty two point two bit and how might we present that? There's a few options, as always, not necessarily a right or wrong, perhaps just a better or less good way of doing it.

So but we'll keep an open mind and explore that as always. Not legal advice, just a conversation starter and some knowledge. And David, we're going to return to you. Welcome to chip in throughout, of course.

But when we put this together, I think David had some some some extra thoughts that were very useful. So we put them in place of a conclusion slide. And then we hopefully, this isn't a massive topic, this one. So hopefully we'll have a bit more time for Q&A at the end and we'll point you in the direction of some other resources.

So to kick us off, what is it? It's used in main options A and C. And if you turn to those parts of the contract, you'll be able to find a defined term that states A. The activity schedule is the activity schedule, unless later changed in accordance with these conditions of contract.

That stumped me when I first read it. I thought, what does this mean? Defining itself as itself. Well, not quite.

If you know your NEC syntax or typography, you'd know that the activity schedule written there with capitalized initials is a defined term. And it's this that we're looking at as a defined term. It's defined as the original activity schedule, the one in contract data, identified in contract data, which is why it's in italics, and less later changed in accordance with these conditions of contract. And as we just saw, we're going to be looking at how to correct, revise and update it.

And that's not unusual. There's a few places where that occurs. You might think of the completion date. So the completion date is the completion date unless changed in accordance with these conditions of contract.

And so NEC uses this as an elegant way of saying, well, look, this is the contractual starting point and it evolves in accordance with the conditions of contract. And that's why we have both an identified and a defined term. So there we go. And a quick reminder, we're going to say some of these sort of reminders as we go through, but information in the activity schedule is not scope and it's not site information either.

So we mustn't rely on sort of elaborate descriptions of work within the activity schedule as a way of somehow substituting or supplementing what's in the scope if we do make any references and indeed we it's quite helpful to do that we really want to be showing that item coverage something will cover a fair bit more we're not relying on it to say more I think I've got this slide too which is just to set out perhaps it's helpful to see what else we might put on there as an activity schedule you can see in this activity schedule we're doing what the contract requires we've got a list of activities with their corresponding lump sum collectively those lump sums are known as the prices And therefore, those two columns are really the essential ones. But you can see we've used a bit of license here to maybe put some other things on there, perhaps an activity reference that ties back into a program. And then that useful synergy and point in the direction of scope as to broadly what items we're talking about. And as we'll see later, this helps us when we bring it into some of the other mechanics of the contract.

04:30 - Example Activity Schedule Layout

Now, and I think David will pick up on this point as well, but it's prepared by the contractor pre-contract. So any client procurers out there getting excited by the prospect of firing up a new spreadsheet and setting out a nice activity schedule to achieve some kind of consistency of tender evaluation, it's really not necessary. It's really not necessary. The consistency is bought by the fact that everybody is looking at the same scope document, which describes what you want.

The activity schedule is just a pricing tool and there's some good reasons for not meddling too much in what should be a contract prepared document. Now I say that a little bit naively because I know what goes on and there's sometimes to a greater or lesser extent the client will have a go at putting something together. And I know that in certain sectors, there's good reason for probing the buildability or perhaps there's only one way of doing something and you want confidence that things are being thought through in a certain way. But that aside, the majority of tasks typically can be put together by the contractor.

And there's a few reasons that David will help us unpack later as to why that would be the case. So some of all the prices on the activity schedule make up that tender total of the prices. And for option A, price to contract with activity schedule, this gives us that total price, which eventually, if all those things are completed, we will pay. For option C, we don't pay from this.

06:00 - Who Should Prepare the Activity Schedule?

It sets the target with which we then compare costs. And we'll have a look at that later. So it's a commercial pricing document, not scope, not site information. And another point to procure is, remember that the prices on the activity schedule They're not used as a basis of assessing compensation events unless by agreement.

The sort of default position is that we use defined cost plus fee and therefore there is no benefit to procurement in the sense of fully understanding the cost breakdown and build up of those activity schedule prices. So be realistic about why you're asking for things if you are and what it's actually going to be used for. It will not, there's no kind of provisional sums, it will not inform necessarily the assessment of a compensation event we'll unpack that a bit further later on okay and the next slide i think is over to you glenn Excellent. Thank you, Ben.

Good. So let's have a look at the role of the activity schedule with regards to option A specifically. And we'll do a separate slide for C. Because obviously there's two main options here that refer to activity schedule, being A and C.

08:00 - Role Under Option A (Priced Contract)

As we've already alluded to, we're going to be tendering option A to ascertain the type of the prices. So the contractor will be committing a tender price and they'll produce their activity schedule at tender stage, break the project down into a number of items. Each of those items, the sum of those adds up and reflects to the total of the prices at tender stage. So this is going to exist.

It'll be submitted as part of Contra Data Part Two. It will exist at tender stage. That's really important because it's then used to assess the price work done to date. So at each assessment date, typically for weekly or monthly, then the contractor is paid for completed items in line with the activity schedule.

And this is such a simple fundamental point. And only today I've run a training session where I had seventeen people. I asked if a contractor's done eighty percent of a line item on an activity schedule, But the last accepted program predicted they were sixty percent. How much should they be paid?

And everyone gets hung up on the sixty and the eighty. And there was only one person who said they don't get paid anything. Most other people thought they got paid sixty in line with the last accepted. A few thought eighty in line with what they've done.

It's really simple. They get paid nothing until an item is complete. So there's no provision to pay part percent complete. That in itself isn't a problem.

11:00 - Payment Rules: Completed Activities Only

It's not unfair. As long as the contractor knows that, then they just need to break their activity schedule down to a suitable level of granularity to give them a sensible cash flow. It really is as simple as that. So break the activity schedule down to a suitable level of detail, and that would depend upon their own sort of sensitivity to cash flow, but also much more fundamentally, simply depending on the contract value and the length of the project would depend on how detailed that needs to be.

The activity schedule is then topped up as we're going to see for compensation events. They'll be added to and form part of the activity schedule. Really importantly with option A though, they don't get added until they're implemented. So that's another really important aspect contractors need to think about in terms of cash flow because If you haven't had a compensation agreed, in theory, there's no way of being paid for that item you may have proceeded with, may have even finished, but because you haven't agreed it, it's not on the activity schedule yet, so there's no way of being paid.

Clause thirty one point four obligates that items on the activity schedule relate to items on the accepted program. So again, NEC does a lot of this, just as encouraging, frankly, good practice project management, where I think it's a good idea to have a correlation between the pricing document and the program, particularly with option A. Particularly with option A, I think that's a really important aspect. Hence, thirty one point four is an obligation to do so.

So that is some of the fundamental elements we've got there for option A. So we don't use, as Ben's already said, we don't use the activity schedule to assess compensation events. They will be, by agreement you can, but otherwise they're built up for first principle using the scheduling cost components, defined cost to build up the cost there. So that is some of the fundamental elements of option A there.

Now, the practical reality is that contractors, you might find that on some projects you've agreed either informally or sometimes even see a Z clause going in to say, we'll go pay part percent complete. I always say to clients, you don't need to do that as a Z clause, just encourage the contractor to break it down rather than agree part percent complete. But if you are on a project, you are being paid part percent complete. All I can warn you is that tap can be turned off at any point and you could be unpaid what you've already been paid until you then are completed.

14:00 - Compensation Events and Option A Cash Flow

So don't rely on a favour. Don't rely on spirit, mutual trust and cooperation to get paid something you're not being entitled to. How about we follow the rules and get paid what you're entitled to? I think that's fair, isn't it, Ben?

Absolutely, yeah. I mean, it's just going into it, knowing what it's for and following the rules. And, you know, it's one of the reasons why, hopefully, hearing that procurers in the client's team are aware it's just one of three main reasons, this being one of them, that preparing the client preparing the activity schedule for a contractor to price that's one of the pitfalls is that we create that cash flow which might mean that you know the contractor's financing that works a little bit so the fee might go up why why get involved with that there's as we'll see later on there's very little reason to do that only a few exceptions and and to your point about the compensation events absolutely right the only way the contractor gets that changed lump sum is through having an implemented compensation event in a timely manner so if you're a project manager and you want to build that mutual trust and cooperation quickly then don't treat the time scales as as targets treat them as maximum see if you can improve upon them let the contractor know that you're you're going to try and get those things processed quickly it'll do a lot to to improving cash flow and building that relationship all good stuff uh and glenn i think also um option c Yeah, let's take a look at C. So there's still an obligation to produce an activity schedule under option C.

So you'd still as a contractor produce the activity schedule in exactly the same way. So you're still breaking the project down to number of items, putting lump sum against each of the items, the sum of all the line items adds up to the tender price that has been put forward. But this time it's only going to basically create the target price for that project rather than the lump sum fixed price nature we have with option c really importantly this activity schedule is not used to assess the interim payments so we're paid under option c as contractors under defined cost plus fee you're not paid in relation to the activity schedule item so all it really does is get you to your target at tender stage OK, so it is a requirement just to get to the to get to the target. Now, interestingly, NEC three used to talk about revising the program with option C, which are going to come onto it a bit more detail later.

But with option C, the real basis for the activity schedule is to ascertain the original target and then it really serves its purpose. It doesn't come into play for any real significant reason after that. Yes, we'll update it in line with compensation events to keep the revised running target, but that's really the only purpose that it serves. So obviously with that, there's more of a commercial role to do with option C compared to option A, because you've got to prove the cost you've incurred each period And the client's got to vet that or the project manager will have to vet that to see if the costs are all justified.

The record keeping increases or the opportunity for inspection of the records, because option C is basically an open book contract. So if you're going to justify your costs, that's got to be substantiated, right? Because the client's project manager is not going to trust the contractor that they're asking for what they're entitled to. So the level of commercial administration increases there with option C.

So that means administration will be required there. So that is really the purpose there for option C. It's maintaining the target. And then once the final costs at the end of the project are ascertained, so the original lump sum price plus or less any other compensations or other amounts will revise the target And then we've done a separate, what is a separate bulletin, certainly to show how that sort of pain gain calculation is done.

16:00 - Role Under Option C (Target Contract)

We've got bulletin twenty eight there that does that sort of detail of the calculation that that's done. So it serves a very different purpose for option A. It is a payment mechanism under option C. It's not used to assess the interim assessments.

It's only there to ascertain what the target was at the start. And then you adjust it in line with compensations. So that's option C. Good stuff, Ben.

And I think just hearing you talk about the kind of open book nature and it's not used for payment. Do you think that that sometimes triggers a situation where compensation events might take a bit of a backseat? The opposite in a way to what we said about option A, where the pressure's on because that's how we get paid. In option C, what's your observation there, Glenn?

Yeah, really frustrating. There's a very big project going on right at the moment, and I'll leave it at that and say nothing more, where it is an option C, and because the contract is being paid, then there's less pressure seemingly on getting the compensation fence agreed. So the forecast cost of the target sat here, the forecast costs are going now. My hands would go out of screen.

They'd go out of shot. I'm not tall enough to show you how far. And also in a similar vein, the completion date is here and i certainly can't go wide enough to show where plan completion is but it's way out there and neither party then fully understands their liability now okay if there's not significant delay damages which there's not again then people think okay it's not quite as important but it's really really important that we keep on top of that process because yeah you need to understand your liability your kpis if you've got them um It's just as important. But yes, you're right.

Because people are being paid, there's not the same sense of urgency that you would maybe get with option A. Yeah. And under the contract, there's no global delay and disruption mop up later on. So all that work still sits there.

So if you don't resource it now, you've got to resource it to do it tomorrow. And all that you do is you you bring that gap, that lack of contemporaneous to those assessments, which you'd otherwise have. So the memory fades. Maybe the records have.

And so I think the message from both of us there is. just because you're operating on an option C, don't neglect to maintain your prices because they'll create that lag on reality that will cause you a big problem later. And it's one of the sure ways to sort of move towards chaos in your contract admin. Okay, good stuff.

And really then, Glenn, we can have a bit of a comparison of the two there just to sort of bring those two things in. Yeah, so you've got, so option A does set the total prices and it does for option C. It is used for assessing payments in A, but not with C. Price is updated for compensation fence.

Yes, in as much as we'll add compensation fence to the original total of the prices. The price is corrected. I relate to the scope. Yes, under clause.

Fifty five point one for option A and revise the price is revised late to the program. Yes, under fifty five point three, which they're not under the option C contracts sets a target or a pain gain share. Well with option with option C we've got that pain gain share, but obviously with option A it's a lump sum fixed price contract. The big one, maybe we didn't mention so far, is the errors in the activity schedule with option A remain firmly with the contractor.

So the contractor's pricing the whole of the scope. And if they miss something in the scope, that's their liability. They can't say, well, it's not in our activity schedule. You accepted our activity schedule.

there's nowhere to claim a compensation event for stuff that's missing off the scope. Estimators errors is not one of the reasons that you can claim a compensation event. Option C, the better news is the contractor can claim the cost of everything they do. And if there was something they forgot to price put in the target, they get paid for it.

19:30 - Option A vs Option C Comparison

But obviously that will lead into gain share. And the more errors you've got, the less likely you're going to come under. You might go over and then again, you're going to share the pain share. So it depends what the percentages are, if you're under or over.

But I think the word you've used there, Ben, is softened. I think that's a nice word. And it depends how soft the softened is, depending on the percentages. But of course, don't forget, it won't help you with time.

So in either option, you might not have allowed sufficient time to do it. So it's the reason clause fifty five point one says information the activity schedule is not scope or site information. So we can't rely on it. And you're right, in option A and C, where we use an activity schedule, it is envisaged that the contractor will prepare it and that the contractor will price it and carry any risks of errors.

So yeah, just to echo that point Glenn just made, as opposed to the bill of quantities in options B or D, which is a document that is assembled by the client and priced by the contractor, there are mechanisms in that if that bill of quantity needs correcting because it's missed some items or is otherwise wrong. So bills of quantity operate differently in terms of putting that risk of error. Activity schedules, it is the contractor's liability, if you like, to get that activity schedule appropriately structured for cash flow and appropriate coverage of the scope that they've got to build. And yeah, again, that's another reason why perhaps clients, we don't need from a procurement point of view and evaluation point of view to put out a document for everybody to price.

I should have been. I don't think I laboured it enough. Joe, that third and fourth line down, one subtle change with option C is that there is no need to revise the activity schedule under option C. That's correct.

Now, under DC-B, you could, and we discussed this on a previous webinar, but option A, there is the requirement to revise the activity schedule under option C. There is no longer any need to revise the activity schedule and equally no obligation to make sure the items correlate to items on the programme. We said it's good practice still to do it, but it's not a requirement to certainly revise the activity schedule with option C. Yeah, we'll cover that in a moment because I'm a super geek.

I've got all the books right next to me within reach and distance. So I just had a quick look and I do indeed remember that. And actually any C four went out the door without me realizing that despite being involved in the process for two years without realizing that that we'd taken that bit out of option C. And I guess it's because it's not required.

But as we'll see in a moment, it's still useful. So you learn something every day. For me, it was that I disappeared. Although I think many of us in practice might still do it, particularly if we're contractors, because we'll see in a moment why it's still very helpful.

OK, so let's look at correcting and revising. Just to make that point one more time, the correcting and revising no longer happens under option C as an obligation, but we still update the prices for compensation events. So we're still updating compensation events. That's the green yes halfway down that list in option C.

It's just the other bits, the maintenance of it for programme changes that we don't have to do anymore. Although, as Glenn said, it's likely to be useful. We'll cover that in a moment. So when we look then at correcting and revising and changing the activity schedule under option A, let's have a quick look at correcting to start with.

So this clause says that if activities on the activity schedule do not relate to the scope or operations on the accepted programme, the contractor should correct the activity schedule. So this correction is not a compensation. It's just an alignment of this important sort of payment tool. to the reality and mapping that to those realities.

22:00 - Correcting the Activity Schedule

So maintaining that synergy between the activity schedule, the scope and the accepted programme is very useful and a contractual obligation under option A that is not a contractual obligation to do under option C, although perhaps is useful. Errors, we just covered this. Errors in the preparation of the activity schedule, both in A and C, are the contractor's risk. More pertinent under A, because we're paid, we can apply for anything that we do with defined cost under C.

But bearing in mind, any errors in either case aren't compensatable. So they're not going to actually get us any time either. So this does not constitute a compensation event. The total of the prices is not amended.

It's just we're sort of stuck with it. The consequence of a pricing error in option A is greater because the contractor absorbs the full financial error. Under option C, that sort of misstep would find a price being realistically lower than the corresponding cost, all things being equal, and therefore it will contribute to a negative gain share position in the scheme of things. And that share position is in accordance with the ranges and percentages stated in contract data.

So once again, there's no mechanism for the contractor to recover additional money arising from errors in the activity schedule. Again, it's one of the reasons that we would look to the contractor to price it. It's different to a bill of quantities. OK.

Glenn, over to you. Yeah, so more specifically, we touched on it already, but let's look at the revision of the activity schedule under option A. So the first reason is a change in the plan method of working. So these are identified in the contract as the reasons why the contractor can propose a revision to the activity schedule.

So reason one, the contractor changes their plan method of working at their own discretion and the current activity schedule no longer reflects the new approach. So an example might be a single operation is now going to be done in two distinct activities with one element subcontracted at different times. So there is going to be a significant gap between the two. We're going to do it in one go, but now we're going to do sixty percent of it early and then forty percent of it at a later stage significantly later, then that might be changing the plan method of working.

There may or may not be a new constraint, which may or may not be a compensation event that's caused that. It could just be simply the contractors changing their ideas now. Programs are fluid, right? So contractors will regularly revise durations, logic, sequencing, and that may mean that the activity schedule that was originally scheduled just isn't quite right, representing how they now plan to do the works.

24:30 - Revising the Activity Schedule

Reason two is correcting items to relate to the scope. So the contractor wishes to correct the activity schedule so the activities do properly relate to the scope. this is a contractual obligation, it's fundamental to the clarity of what is due for payment. If the contractor realises that there's an item that's not in the activity schedule, then they can add it but obviously the total of the prices still needs to be the same.

So yes, they can add an item and put money against it, but obviously that money needs to then come from somewhere else on the activity schedule. So you'll have to maybe lower the cost of one or several items elsewhere to at least mean that when you're doing the work, you're getting paid proportionally for what you're doing along the way. Now there is a note that poor cash flow is not a pure valid reason on its own. Uh, fifty five point three does not entitle the contractor to submit a revised activity schedule under.

Now myself and Ben have had long conversations on this and I think we agree that we do agree that that is that is the case that poor cash flow is not a valid reason. Um, however, um, at the end of the day, if the contractor is realising that, yeah, they've not split it down in enough detail, by agreement, you know, anything's possible. So under clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, clause, If there is a genuine reason for changing an item on the activity schedule, there's nothing to stop the contractor at the same time also adding in a bit more detail. There's no way that says they can't do it, but equally there's no way that says the spoon feeder say you can do it.

So I kind of feel there is always a kind of a reason or excuse the contractor will be able to find a reason why they should be revising the activity schedule. But does it solely mean they can only change that bit? Well, I don't think the contract expressly says either way. But bottom line is there is a risk that the project manager could say no, because I think you're just doing it purely to amend your cash flow.

So the simple answer really is don't fall into this trap. produce a decent activity schedule to a decent level of detail from the outset because you cannot solely rely on poor cash flow as a reason to revise the activity schedule and i certainly wouldn't condone a contractor every month revising their activity schedule like they do the program just to squeeze in a bit of extra cash coming in the door Definitely not. And as a project manager, I'd find a reason to not accept the revised activity schedule because under clause under clause fifty five point three, the only reasons for not accepting the revised activity schedule is that they're not in line with the accepted program or they're adversely front loaded. So they're not reasonably distributed or the total of the sum does not add up to the total of the prices.

So it is important that a contractor only revises the activity schedule when absolutely necessary and not thinking they can do it just to marginally improve the cash flow. Anyway, the chances are it won't make it in time for this month's application because if they do revise the activity schedule, the project manager's got the period for reply, which will probably exceed the date the application's due, so you can't rely on it for this application anyway just to try and improve on your cash flow. Not really. I think probably the robust view of it is to if you look at clause thirty one point two in the programme, you're supposed to state for each operation of how you plan to do the work in each operation.

So for me, that's the test. Have you had to change that statement? And if so, you might open up that reason if it's just that you've bundled things together. in you know a bit of a kind of bill of quantity summary page and you've called that your activity schedule that's whether in in in an extreme case you put all your reinforced steel in one place or your steel reinforced concrete in one place that's perhaps the the the the the trap you don't want to fall into so yeah just follow what it says um i i if the client's saying to you pretender and you're able to to have a conversation about those tender instructions um why have you priced this i was hoping to do it slightly different way sorry why have you prepared the activity schedule for me i was hoping to prepare in a slightly different way that's probably a helpful conversation to draw out uh but yeah all good um so those are those three reasons on the screen there uh glenn just mentioned um so yeah not relating to operations on the accepted program um uh and uh you know the the previous one as well reason for changing it around it not complying with the scope you know maybe it's scheduled over a nesting season or something like that and you're talking about chopping trees down you know all that kind of stuff that's not possible it's just bringing synergy in with everything change the price is not reasonably distributed that front loading bit that glenn mentioned good stuff um so we know that's for a we don't have to do the revising and the correcting for c like we did in nec three it's not it's not absolutely necessary so it's been taken out but i actually think it's quite useful to still do um for some of the reporting exercises at least so so we're talking about continuing to maintain that synergy of the activity schedule and the prices in it against um the the uh the changing program uh you know, as things evolve and very useful perhaps to keep that updated and in sync, which you have to do in option A, you don't have to do in option C, but this is why I would do it.

I think it makes sense because mapping the activity schedule to the accepted programme and time scaling those prices got nothing to do with payment under option C, but it's how we priced across the project. So we get that time scaled S-curve of our target, if you like. Now, of course, each it could be very crude. There might only be a few dozen items on there for a very expensive project.

It's probably not. There's probably a degree of granularity to it. So how well things map to reality and when is obviously a question of judgment when you put it together. But in the absence of anything else, it gives us at least the whole of the prices.

So forecast over a period of time, we can then plot our defined cost plus fee. And you can see where we're up to month six here when the line breaks into a dashed line, which is our forecast defined cost through to completion, which we have to do anyway. Right. So we have to give forecasts of defined cost for the whole of the works.

as part of course, a twenty point four under option C. So it's not too difficult to add the fee to that, to bring it into parity with the price and maybe plot the two on the same chart. It's a bit of a graphical way of doing value analysis, isn't it? And we're then predicting what that pain gain share might look like.

No requirements do this, but often when we talk about making main option selection choices, we think a great deal about the risk of a main option. um budget certainty value for money compared with the quality of the scope and the ground but we don't often think about the resources we need to run it and perhaps even less so the reporting that we might like to get out of it as a degree of predictability on a target contract this is probably getting close to uh to the best we can do um in option d obviously this is much more complex because we're not just speaking to a document that speaks to the program now we've got a somehow allocate all of those small items, something I had to do for real once, which was complex. The other thing it helps with, of course, is that X one price adjustment for inflation, because we're time scanning things, you could also perhaps build that into this model. Okay, anything to add there, Glenn?

No, I think that's good. I think, yeah, it's useful. There's some useful exercise to be done. But I must admit, I do get why it was taken out of NEC for.

I can see why, because why we're revising an activity schedule when or even the fact it's got to relate to items on the accepted program as definitive as A when it's not being used as the pricing tool. I get it. I wouldn't have minded either way, but I get why it's come out. Yeah, I agree with that.

um okay so let's look at that final bit so we've dealt with correcting um the activity schedule we've dealt with revising the activity schedule and now we want to look at changing the prices on it which is the verb around compensation events and a few other places as well defect acceptance and acceleration too But we're told that clause sixty three point one tells us the prices are changed due to the effect of the compensation events on defined cost plus fee. We look at the prices of the lump sums in the activity schedule. There's no mechanism describing how exactly to update the activity schedule. Clause sixty three fourteen is common to option A and C.

It says effectively that changes to the prices are in the form of changes to the activity schedule. So we know we've got to do something to represent the compensation that's in the activity schedule. Now, there are many ways of doing this. And Glenn and I were debating this in the Seeker Bulletin that went out, was it last month or the month before, about revising the activity schedule for price change due to CEs.

There's a few different ways of doing this. I don't think there's a right or wrong. Pick your approach. And we're going to have a look at a couple of those in a moment.

So yeah, clause sixty two point two tells us that quotations comprise proposed changes to the prices So I think that's not just how much they're changing by, but how they're changing. And I think putting that in your quotation is also pretty useful. And then clause sixty six point two tells us that when a compensation is implemented, the prices have changed accordingly. So there's a bit of devil in the detail there around how.

29:00 - Why Still Maintain It Under Option C?

And that's what we thought we'd unpack on this next bit. So I think. We're going to have a look at this first option. Glenn, do you want to talk us through this first one, given I'm going to jump on slide sixteen?

Yeah, sure. OK, so this is one way we can we can do it. And I must admit, this is, Ben said, there's more than one way we can do things and not necessarily right or wrong. But from a practical point of view, when I was when I was on the tools doing proper work, like many of you, rather than just doing this Mickey Mouse training stuff.

So this is what I did on online projects, especially with Auction A. So first of all, as a planner, as a planning manager, as I was, we'd make sure that the activity schedule was basically aligned with the program. So we had a direct correlation between the pricing documents and the program, which clause study one point four obligates anyway. So because there's that obligation, if you go the whole hog, you can then cost load the program in line with the activity schedule.

And then that useful synergy and point in the direction of scope as to broadly what items we're talking about. OK, so that then means that the planner can actually do the application straight to the program, which is a step too far for some commercial people who want to make a control and say, no, we're not. We're not really doing that to the planning team, but it works really well. That's almost a side note, but it does work well.

But with that in mind, that's why I quite like this approach. with what we're calling option one here. So what I want to do is we've got the original activity schedule. We've just made, you know, nice and simple one, ten items, hundred grand.

It's a million pound tender. And then if we go to figure two, we're going to see we've got two compensation events. First one is to delete activity two. And the second one is some extra works added in.

Now, first thing to say is we don't use activity schedule rates to assess compensation rates. So if activity two is deleted, it's not a simple case of, well, we knock off a hundred thousand pounds. If the contractor believes with what the information they now know, they could have done activity two for eighty thousand pounds, then that is the saving. But then we've got to think about, OK, how do we adjust the activity schedule in line with that?

So particularly from a programme point of view, I really want to maintain the original total prices as consistent and then have the compensation events with the ads and the emits. So what we've done is we've tagged activity two with CE one. CE one is then a minus assessment of eighty thousand. So you've always got the original one million pounds as the bottom line.

And then we're amending through the compensation events what the adjustment should be. So all we need to do is remember that when we're applying or when we're applying C one, when it's implemented, we will then take off the hundred thousand pounds but also the minus eighty thousand which leaves the contract with the residual twenty thousand pounds um that they will they will be paid um and also c two much clearer it's just an extra compensation twenty five thousand pounds so we've added in an extra twenty five thousand so you can see here on the activity schedule we've got the original one million pounds is always maintained so we've always got the original sum that we're clear on the original activity schedule value and then the minus eighty and the plus twenty five means the cumulative total is nine hundred and forty five thousand now one side note is we need to think about, if we take the twenty five thousand, it's probably not that big a deal because it's quite low value. But if you just have CE two as one line, then obviously you only get paid when that item is complete. If that was a bigger item, two hundred fifty thousand, then as part of the CE quotation, you need to break that down into chunks and put lumps of money against each of them so that when it gets added to the activity schedule, you've already kind of agreed a breakdown as part of the CE quotations of how you're going to be paid.

The further problem with that is the quote might not be agreed at those values. So when it is implemented by the project manager, the granularity is agreed, but you might need to re-evaluate the numbers to reflect the value the project managers assessed it at. So there's a small nuance there. But that's one thing just to be careful of.

32:00 - Changing Prices for Compensation Events

Big compensation events, you don't want them as one line. You want to break those down into further chunks. That can be done as part of the CE quotation. So back to the main point.

Option one is always maintaining the original one million pounds. So we've got it and we've got that number. We can always reconcile on the program. And then the compensations are dealt with as a separate line item.

Overall, though, we know the total prices here is nine hundred forty five thousand. That's one option. Good stuff. And I think it's got some benefits to reporting from planning point of view, Glenn, I think you mentioned.

I guess I take a slightly different approach and I would probably favor this option, which we're calling option two. And you can see straight away that I use the same notation that activity two has been adjusted by CE number one. But this time I'm putting in the net effect of that. So we lose the visibility of that original price.

But then I guess, you know, that's in a previous saved version of the schedule. And then I'm adding in another activity in the appropriate place to show CE number two there. So we've got a maintained total of the prices and the difference between the prior schedule and this schedule shows that compensation event effect of implemented compensation events. Then the detail really for me then would be in the compensation register.

So you've got, you know, the original total of the prices and then the kind of compensation event tracker. I think part of it comes down to your approach to applying for payment. So some QSs, and I'm not sure this is kind of correct in the strictest sense, apply for activities and compensation events. The subtlety with this approach is you use the compensation ads to update the prices and add new ones if you want.

as necessary. And then you are applying for lump sums in the activity schedule. Either way, you know, I guess there's a way of doing it. And either one of those probably gets you to the same answer.

So, yeah, I mean, so there are a couple of options. I'm sure people have got a third and a fourth and a fifth as well. So yeah, those are the two ways to do it that certainly Glenn and I have seen. There are probably other ways as well.

I think the other thing with this approach is what if your compensation event affects prices rather than a price? It might affect different bits at different times. And again, I suppose this allows you to do that. I'm sure there's an alternative way of doing that as well in the other way.

35:00 - Option 1: Original Total with CE Adjustments

So that's the second way that we'd suggest we do it. Now, the interesting thing in either one is that in either this method or this method, to Glenn's point, you've assessed this compensation event properly, the omission we've assessed properly in defined cost at minus eighty thousand, including the fee. So that that negative eight, that reduction of eighty thousand pounds, which is the defined cost plus fee sort of saving, if you like, means that there is a net payment remaining to pay of twenty thousand. Now, in option one, that's kind of taken care of, as long as we can establish when we're going to pay this hundred thousand original sum.

And do we pay the compensation of minus eighty at the same time so that one nets off the other? But either way around, we do need to have an updated activity schedule. And I think there's two ways people tend to do this. Put in the comments if you've got a third.

But essentially, we either have a ghost item, so something we're not doing anymore in the case of an omission, with either a negative or positive balancing sum by the time we take the original price and change it. Or some people get quite excited about that because they don't like the idea of paying for something that they're not doing. So kind of intuitively, I guess they say, well, I don't want to do that. I want to spread the net remaining element plus or minus over the remaining activities we haven't built yet to kind of smooth that cash flow.

I actually think the logical thing to do is probably the first of those two choices by saying, well, we're going to address that net impact in month because that is true compensation. Remember, compensation being from the word together, rebalance equally. So the balancing point of taking some work away or adding some work in, we're using defined costs to assess the extra or reduced amounts at the time in that month. So I think a ghost item dealing with it probably preserves the cash flow better.

But, you know, people do either. And we thought we'd table both for your consideration. Just looking at time, we've got some really good questions coming in. I think, Glenn, if you've got nothing to add to that, we'll hand to David to do some final thoughts.

Any final words on that one there, Glenn? Just one thing, not so much that slide, but just one thing I was thinking. So to emphasise that. there's nowhere in the contract that says we revise the activity schedule with a compensation event.

So you are not submitting a revised activity schedule with every compensation event. You're only revising the activity schedule when you change the method of working and such like. So with the compensation event quotations, you need to get across what the changes the activity schedule are. So whence the CE quote is agreed, we've kind of agreed the change is the activity schedule.

And then if you take option one or option two, which both work, then we're conveying how, what those changes are. So the important thing is we do not revise the activity schedule with every, you don't have to issue a revised activity schedule with every compensation vendor. which on projects where you've got four hundred C's a month, that's very good news that you don't need to do that. That's my take on it, Glenn, as well.

I think because it talks about changing the prices and the prices live on the activity schedule. But I guess if you ever you did do a revised one and it doesn't hurt to refresh every now and then, perhaps just to keep the admin trail clean. You'd, of course, I imagine, take account of the latest information. David, a few final thoughts.

38:00 - Option 2: Net Effect Approach

Yeah, thank you for that. As I say, it's quite an interesting topic, but I think some of the feedback that I've had and some of the consideration that needs to be out there really is that if the client is going to prepare the activity schedule for the contractor to price, then that can cause issues in itself because it's not actually aligning necessarily with what the contractor's delivery plan is and what their cash flow plans will be required and things like that so you're not actually you're building in um an approach that doesn't naturally fit what the contractors try to deliver and you will have a number of contractors that are bidding for the work and and they will all have their own approach to it and so you're not allowing that to necessarily come to the fore you're potentially stifling innovation and by not actually seeing that come through and letting the individual contractors develop their own activity schedule, you're actually missing the opportunity to compare what you're getting and why you're getting something maybe slightly different and which might actually be a benefit to the client if they were to look a bit deeper and actually evaluate that. We also know that if the activity schedule dealt in such a way that it stifles the ability for the contractor to get payment when they actually need it, it can create cash flow problems. And when you think that the whole driver behind getting involved in the competitive exercise is actually to engage in work that delivers a positive outcome for everyone, including income for the contractor then by not doing that or putting complications in the way that can create a few challenges so that you know that that just part is part of the problem but also it's you know one of the points I've got here is that it's not to be used for assessing compensation events so You need to actually still be having a separate build up for that.

You know, if you're we do have feedback where clients have been making assessments of what they might do next and actually using the activity schedule to guide them on that. And that, as we've heard from Glenn and from yourself today, is not how it's meant to be used. But in some cases it is being used like that. I suppose equally as a significant problem is actually defining the item coverage in terms of what is deemed to be complete or substantially complete.

A lot of that, you know, we have issues where some of the documentation can either be a bit vague or it can be very precise. And it's identifying within that where you will, as a contractor, get that signed off as being substantially complete. and if there are sort of differences in opinion then obviously that can be quite a challenge so those are some things that need to be picked up and considered because ultimately the dispute that can arise can come about from where this has been incorrectly prepared or where it there's a vagary and it things become subjective and that's sort of significant change or challenge that we have I think we have done some feedback to our members and the general rule is that the disputes tend to centre on the administration interpretation and the payment behaviours rather than on the concept itself. So I think that's where the challenge is.

And you have a very formal process to actually get to where you need to go. But if you do have that subjectivity brought into it or you try and refine the ability of the contractor to bring their sort of expertise to the party, then that's where you have challenges. Now, all good points. Now, you're really, really interesting.

Just to summarize, just to close that very simply, just a reminder, the NEC contract does not expect the client to produce the activity schedule. It doesn't expect it. And if the client has done it, all it is has been alluded to is a tender comparison document. I wish they call it that.

This is a tender comparison document and feel free to break it into more detail. That can be the activity schedule, which is in line with the high level summary one. And then they work in harmony. So by all means, yep.

have a tender comparison document you want them filled in, but allow the contractor to do a more detailed activity schedule. And that's the one that's referenced in data part two, but it will still add up to the same as their high level tender comparison. And then they can work in harmony with each other. Absolutely.

40:00 - Contractor Perspective from CECA Southern

Absolutely. Okay, so we're into questions. So, Kev, I noticed this question, I liked it. It's a good one and something that we try and do when drafting the contracts is to look at those extreme cases and sort of look out for how we might fix them.

I think the answer there is yes, in theory it could be. I think your client's almost certainly gonna say, can you break it down a bit? But strictly speaking, now that those clauses are out, that we're in an EC-III, I guess this would work. I mean, it is serving to do just that, a target.

I do think, though, that you'll probably want some formal reporting and it might be helpful to distribute those prices in some way. Useful also if you are operating X one price adjustment for inflation. And don't forget, you've always got to do those forecasts under option C of defined cost through to completion of the whole of the works anyway. So this might give you a useful comparator if you are in a bit more granularity.

But good question. Good challenge. I like it. Glenn, do you want to take the next one from Peter?

so our compensations again paid when complete um how is granularity applied in that circumstance for one large uh ce so yeah if we're talking option a um then yes well well you're with option a you're paid upon completed items in line with the activity schedule and the compensator doesn't make the activity schedule until it's implemented So for the same reason, yes, you need to get with option A your CE's agreed in a timely manner. Otherwise, you're not going to be paid for those. Now, we do see in practice, particularly where a client may be viewed as being seen to be delaying the CE process, the quotation process, they may or may not pay you some on account. If the quote's under grand and they've got to sixty so far, you've done the works they might pay you some on account if you're lucky but you know you really need to both try and get through the agreement to the CE process so you both know where you stand for that reason again we need to break the CE quote down into smaller chunks because if it's a big expensive CE we need to break it down into chunks and then you get paid when those smaller chunks are completed Don't forget, Peter, as well, just to build on what Glenn's saying, that the price for work done to date is completed activities under option A, in which case, as Glenn says, you will want to, if it's six activities and each of those activity prices have increased by ten K, you'll get paid that ten K extra across each of those activities when the work's complete and when the prices have changed, which will be uh when the event is implemented under option c the timing of when the event is implemented is is kind of uh um irrelevant in a way we're just maintaining those prices in option c we're always paid for classifying cost plus fee for the work so um the work will include the conversation event the contract doesn't distinguish between original works and compensatable works it's just the works and because the scope might put additional work in it's just part of the works so there's no i know sometimes we account for them independently but i think that's another reporting layer the purest contract sense is that we pay for the works in accordance with the price for work and state definition and we let the mechanics update either the prices or we're we're building in that extra work in the forecasts so Good stuff.

We've got one from Mark on an option C. One thing I see frequently is in the NEC for as far as I'm aware, does not detail out what should be detailed on a timesheet for defined cost. Well, interestingly, there is a bit of guidance on this. There's a bit more gathered in a paper on this recently.

It's in one of the LinkedIn posts. We'll surface that and do a link to it. that you may include as a sort of scope template entry into how to set out decent records of defined cost. But there's already quite a lot in the contract itself around the kinds of records that constitute defined cost and always worth having a look at that schedule of cost components or short schedule if you're on option A.

to understand the kinds of depth and types of things you'll be doing. And I think very worthwhile putting that and defining or stating it, probably the right word, in the scope to sort of state the kinds of additional records and the level of detail that you want. And of course, use one of these, well, certainly Gather has an option there for a standard record management system for capturing our records. Records, records, records.

43:00 - Q&A Session

Anything to add to that, guys? No, other than just agree early doors. You know, this is a statement for most staff, but with the records, what details we need, try and agree them early in the project rather than get to the situation where you're now arguing what that should be, try and agree up front. You know you're going to need this, so let's agree what level of detail we need at the beginning and then follow through with it.

Absolutely. Glenn, you have a plane to catch, so I'm going to help you stick to the program. David, Glenn, thank you very much. Nice to see everybody.

Thank you for the questions. We'll continue to answer them when we go offline. Just leaves us to say, advertise our next session, which is episode nine on disallowed cost explained. It should be a really interesting one.

I look forward to putting that together with David and Glenn over the coming weeks. Closing remarks, gentlemen? No, just do what the contract says. From my perspective, it is do what the contract says, but actually sort of work together.

More sort of understanding between the parties will unlock the potential of some of these issues that do arise, unfortunately. And by having that sort of awareness from the outset, then you're going to get better outcomes. Good stuff. Thank you all.

See you next time. See you all.