Formation of Construction Contracts

NEC3 was launched in 2005 based on the nine main clauses. Out of the core clauses, a user chooses a main optional clause which is used to provide the necessary contract procedures. The nine main clauses include general clauses, contractor’s major tasks, time, testing and defects, payment, compensation, title, risks and insurance as well as termination clauses (Gould 2007). This paper will discuss the major as well as secondary option clauses which are used in the contract paper.

General core clauses are concerned with definitions, analysis and other introductory issues of the contract. In addition, a second section of main clauses in a contract is concerned with the major roles of a contractor, such as the design of equipment used as well as the employees working on the project (Gould, 2007). A contract must be time bound and therefore, the third clause of a contract is concerned with the time aspect.

The fourth core clause looks at tests and defects. It provides a platform for inspection and correction of defects. Project managers use testing as a very important clause since it establishes credibility of the contracted work. Moreover, matters of payment are addressed by fifth core clause. The amount that is due during every assessment date is evaluated (NEC3 2005). The payment is certified by the project manager within a week for each date of assessment.

Compensation events are addressed in the sixth core clause. This has always been a major aspect of NEC contracts although it raises a lot of controversies. If case such an event occurs, it normally leads to time and money assessment instead of extension of time of contract (Trebes & Michelle 2005). NEC drafting committee has been showing some considerations and even amendments made towards provision of compensation (Institution of Civil Engineers 2005). Genuine identification and assessment of losses and other damages are keenly considered before compensation is made.

The seventh core clause addresses the employer’s rightful ownership of equipments as well as their elimination from the project site. Risks and insurance as a risk measurement are addressed by the eighth core clause (Institution of Civil Engineers 2005). The types of insurance policies are usually tabled, which covers their respective provisions. The contractor is required to submit a credential that shows that insurance is in place. In case the contractor fails to insure, the employer can acquire the insurance policy and pass the cost to the contractor (Trebes & Michelle 2005).

The last core clause deals with termination of contract. The basis and process of termination are well stipulated. It is worth noting that either of the parties in the contract can terminate it. The contractor can end his contract if not paid within thirteen weeks since issuance date of certificate (Weddell 2006). Also, the employer can end the contract if the contractor does not conform to his duties, fails to provide a guarantee or hires a subcontractor without approval by the project manager.

The above main clauses formed the basis of six main options which still hold under the operations of NEC3. The options run from option A to F and each of these has its own risk allocation representing current procurement exercise. On the same note, the nine main clauses provide a platform for formulation of the other fifteen secondary option clauses. Therefore, the whole matter on contracts assumes a hierarchical representation.