Forty years in the making

Last year, APM and the Institution of Civil Engineers (ICE) launched a new short form of the NEC3 Professional Services Contract.

The NEC3 Professional Services Short Contract (PSSC) effectively replaces APMs Standard Terms for the Appointment of a Project Manager.

The collaboration between APM and ICE publisher of the NEC3 suite of contracts developed when separate consultations of APM members and NEC users identified a gap in the market for a shorter version of the widely used Professional Services Contract (PSC). APM had also identified a need to replace its Standard Terms for the Appointment of a Project Manager with a more modern, clear and flexible contract.

I then led a team from APMs Contracts and Procurement SIG to develop the new contract in consultation with the NEC team.

Wide application
The PSSC can be used for any low- to medium-risk professional services commission in any country and any sector not just the appointment of project managers. It has a range of payment mechanisms including:

• defined services paid for as a series of completed activities
• services defined in terms of what the consultant has to do, but not in terms of the quantity of work which has to be done the consultant is paid for the quantity of work done multiplied by their tendered rates
• payment on a time charge basis, where the consultant is paid on the basis of tendered rate per unit of time multiplied by the time that they either take, or, in the case of called-off work, are forecast to take to do the work.

Rekha Thawrani, who heads up the ICEs NEC team, says the PSSC can potentially be used in all industry sectors. It is designed specifically for procurement of professional services and consultancy on smaller or lower-risk projects. Typically these projects would not require sophisticated levels of management and would involve contracting a few professional people for a matter of days to, in the case of a project manager, a couple of years at most for the duration of their project it is therefore ideal for use on nearly any project.

While Rekha anticipates that much early use of the PSSC will be within the building, civil engineering and facilities management sectors, she says part of the aim of working with the APM was to encourage take up outside these traditional sectors. For example, even her own team has started using the PSSC for the commissioning of new training courses and products.

The PSSC is an alternative to the NEC3 PSC, which is for more complex longer term assignments on larger scale projects, says Rekha.
She says the PSSC is similar in its approach and ethos to that of other contracts in the NEC3 family (see Figure 2) in that it promotes collaborative working and effective risk allocation. The key objective of the PSSC is to provide users with an easy-to-use, easy-to-understand short version of the existing PSC, doing away with aspects and clauses of the contract which are irrelevant or unnecessary for smaller-scale projects. It provides users with the exact content they need.

Contact of choice
The PSC on which the new contract is based is already the consultancy contract of choice for UK construction clients, according to specification expert NBS part of the Royal Institute for British Architects (RIBA).

In its National Construction Contracts and Law Survey 2013, published last October, NBS found that more clients are now using the PSC for professional appointments than any other form of contract including bespoke forms and RIBA, JCT and RICS agreements.

Adrian Malleson, head of research, analysis and forecasting at NBS said in the survey: Clients are most likely to select the NEC Professional Services Contract, with 41 per cent telling us they had done so, compared to just over 20 per cent last year.

Increased usage of the PSC reflects the surge in NEC3 contracts generally, which are now the most used contract suite by 22 per cent of the construction industry, up from 16 per cent in 2012.

The NEC3 suite now has a track record in delivering the UKs largest projects on time and budget, not least the 7bn of venues and infrastructure for the London 2012 Olympic and Paralympic Games.

It is also currently being used to deliver the Nuclear Decommissioning Authoritys 50bn clean-up programme, the 15bn Crossrail project, the 2.5bn Heathrow Terminal 2 and the 2bn Thames Tideway tunnel.

Waiting in the wings are the 43bn HS2 and the 16bn Hinkley Point C nuclear power station.

The contract is also gaining ground overseas, most notably in Hong Kong. After a series of successful pilot contracts over the past few years the Hong Kong government recently announced it would be adopting NEC3 contracts generally for all projects from 2015/16. The contracts are also being widely used in South Africa and New Zealand as well as in Antarctica, Australia, India, the Netherlands and the UAE.

Home support
Clearly the UK governments support has been vital in encouraging adoption of the NEC3 suite. When the third edition was published in 2005 it was endorsed by the Office of Government Commerce, which confirmed it complied with the principles of the governments Achieving Excellence in Construction initiative and recommended its use by public sector construction procurers.

This has since been reiterated by the Construction Clients Board, formerly the Public Sector Construction Clients Forum, which recommended in 2009 that public sector organisations use NEC3 contracts when procuring construction.

NEC3 contracts are now at the heart of the project procurement programmes for the Highways Agency, the Environment Agency, the NHS, Transport for London, most water companies and most local authorities.

But it is not just the government endorsing NEC3 the number of industry endorsements is still on the rise as the contracts continue to deliver. In 2009 the ICE finally abandoned its time-honoured Conditions of Contract, which for more than 50 years had been at the heart of infrastructure procurement throughout Britain and the Commonwealth.

ICEs council voted in August 2009 to recommend NEC3 as the best-practice contracts for all construction work in the UK and overseas.
Further endorsements followed from the International Organisation for Standardisation, the British Institute for Facilities Management, the UK Facilities Management Board and the South African Construction Industry Development Board and now APM.

Roots in project management
The widespread support from construction project managers is not surprising given that the NEC was created by the industry nearly 20 years ago to resolve the problems caused by the adversarial nature of traditional contracts. Furthermore the creator was Dr Martin Barnes CBE, former president and current vice-president of APM.

The inception of what we now know as NEC3 occurred 40 years ago, when Dr Barnes had his own business which, among other things, managed building projects for property clients. It was very difficult to manage projects effectively because the contracts which everybody then used sustained so many problems of practice and behaviour, he recalls.

Modern project management was gaining ground around the world and being well used in many sectors of industry, but the JCT contracts and the relationships and processes which flowed from them prevented UK building projects being managed effectively.

He eventually persuaded the ICE to allow him to draft a radical new contract, which would stimulate and not frustrate the application of good project management, and produced a first draft in 1986.

A team of leading project management, construction and legal experts was then tasked with developing the contract and, after seven years of painstaking drafting and consultation the ICE council finally approved the first edition of the NEC for publication in 1993.

By this time Sir Michael Latham had already started his review of contractual practices in the construction industry. In his report he said the NEC was the only contract which came near to meeting the 13 principles he set out for an effective, modern contract. In fact NEC complied fully with 11 of the 13 principles no other contract came close.

Latham's principles
According to Barnes: We decided to produce a second edition quickly which would comply with all the 13 of Lathams principles and also take into account the relatively few teething troubles which early use of the first edition had revealed.

This was the NEC Engineering and Construction Contract (ECC) second edition published in 1995.

The first edition of the PSC followed just behind the ECC, with the first edition appearing in 1994 and the second edition in 1998. Together with associated sub-contracts and short contracts and new forms for facilities management and frameworks, the full suite was relaunched as NEC3 in 2005.

In addition to the main ECC and its six options, it included the Engineering and Construction Subcontract, Engineering and Construction Short Contract, Engineering and Construction Short Subcontract, Professional Services Contract, Adjudicators Contract, Term Service Contract and Framework Contract. Together with various guidance notes and flow charts for each contract plus a new guide to procurement and contract strategies the family comprised a total of 23 documents.

A new Supply Contract was added to the suite in 2010, followed by a comprehensive update in April 2013, which saw the launch of the PSSC and new series of how-to guides bringing the total to 39 documents.

NEC3 was the result of a huge amount of work by a large number of people and taking full account of the huge volume of experience of using the NEC second edition by people in all sectors of construction activity around the world, says Barnes.

Everybody who has been involved in developing the NEC to this point is hugely proud of what has been achieved. Who says you cant reform the practices of a conservative industry and its surrounding professions? You can if you have some intelligent, perceptive and open-minded people who are willing to try something new. And we do have people like that in the members of the NEC Users Group.

Getting started
For APM members who have yet to experience NEC3 contracts, the PSSC is certainly a good place to start.

The contract is primarily designed for a few people managing a project with helpers. For instance, there could be one or two people doing the majority work to deliver a series of outputs to stated dates, albeit with their bosss oversight, and specialists contributing advice and reviews. It could be a project manager under a time charge contract managing a project full time who, from time to time, may require extra expertise or resource at busy times. Or it could be for a professional adviser giving predominantly on-going, but ad hoc advice to a client on a time charge basis.
On occasions, they may need to bring in extra expertise and/or a discrete bit of work may drop out to be delivered on a priced basis.
In terms of value, the PSSC is suitable for assignments from less than 1,000, going up to 200,000 a year for a for a full-time project manager, and then up to 500,000 for defined assignment delivered on priced basis by a small team say six people over half a year. As a rule of thumb, we do not envisage the PSSC being used for commissions of more than 500,000. Often though, for assignments of complexity the full PSC will still be more appropriate at values below this.

Biography
Dr Jon Broome is managing consultant of Bristol-based project management consultancy Leading Edge Project Consulting Ltd and an acknowledged expert on NEC3 contracts. He is also chairman of APMs Contracts and Procurement SIG and was leader of the NEC3 PSSC drafting team.

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