OVERVIEW OF THE NEW ENGINEERING CONTRACT
3.4 Evolution of the NEC in Transnet SOC LTD
turn of events. When deviations are noticed or reported, they are dealt with in accordance with the clauses provided for in the contract and proper remedies are applied (SANS 294, 2004).
When all the contract requirements are met or the contract has been terminated for whatever reason, SANS requires that a record be kept in the database detailing the performance indicators relating to time, cost and the attainment of specific goals associated with a preferential procurement policy, or the reason for the termination.
One of the pieces of legislation that has been introduced is the Construction Industry Development Board Act (2000) CIDB, which sought to standardize procurement routes for all state entities. This was one of the laws that were met with resistance, even though it was meant to ease the problems of procurement in the country. This piece of legislation provides for only four forms of contracts to be used prior to the closing date.
These are the General Conditions Contract (GCC), the Federation Internationale des Ingenieurs-Conseils (FIDIC), the Joint Building Contracts Committee (JBCC) and the New Engineering Contract (NEC). As indicated earlier the information about the said contracts is obtained in a website that is dedicated for the development of the NEC.
Since the NEC is an international procurement tool, it also gives users tools to draw out their skills to apply to the environment in which they are working (Baird, 2006). It is necessary to present a brief background on how NEC was introduced at Transnet SOC LTD.
ranks of other profit-seeking corporations. Since then, the company has been expected to produce dividends for its only shareholders, the government. The company is also subject to auditing and it pays tax on its profits (Transnet article, 2006). With regards to procurement processes, at this time Transnet used the old contracts, which did not meet the new government’s requirements for considering previously disadvantaged individuals. For Transnet to comply with government initiatives, a number of contracts were introduced to balance the imbalances. Transnet’s executive management chose the New Engineering Contract (NEC) as the contracting form to be used for all major professional and construction projects.
The NEC, being a family of contracts, facilitates the implementation of sound contracts, management principles and practices, as well defining legal relationships. The main aspect of the NEC was to move away from a reactive and hindsight-based decision-making and management approach to one that is foresight-based, which encourages a creative environment with pro-active and collaborative relationships.
There is still a necessity to transition from the numerous current contract management forms that Transnet ports still use, to the NEC. The transition requires the alignment of all contract management processes, including those allied management processes designed for ports. This transition and alignment require more cooperation from all departments within Transnet National Ports Authority.
The NEC is the contract of choice for Transnet SOC, therefore, a large number of capital projects are run in the organisation. The contractual relationship arising from those projects is governed by the NEC. As Transnet is a state-owned enterprise, whose procurement processes are governed by legislation, Transnet Limited ruled to standardize the use of NEC across the organisation. Transnet Limited, a State Owned Company (SOC), used its own form of contract, the E5 General conditions of Contract (Transnet presentation, 06 April 2009).
Construction works mean the combination of goods and services arranged for the development, extension, installation, repair, maintenance, renewal, removal, renovation, alteration, dismantling or demolition of a fixed asset, including building and engineering infrastructure. In parallel with the regulations being promulgated, Transnet embarked on a
major challenge for Transnet, as this plan encompassed major construction works (Transnet presentation, 06 April 2009).
This meant that Transnet’s E5, which was previously used, was not recognised or recommended. Transnet had to comply with and utilise a standard set of procurement documents, as defined in the regulation. Transnet had to comply by November, 2005. The Construction Industry Development Board (CIDB) Act, (Act 38 of 2000) was enacted to provide for the establishment of the CIDB, to implement an integrated strategy for the reconstruction, growth and development of the construction industry and to provide for matters connected therewith.
Since Transnet was not ready, the CIDB granted Transnet an extension to comply by the 01 July, 2006. Subsequently, a number of workshops were coordinated with the different Organisational Divisions (ODs). On 14 October, 2005, at a final workshop, consensus was reached that Transnet would adapt the NEC3 suite of contracts as its official form of contract.
This strategy was ratified by top management. Transnet officially launched the NEC3 at a seminar in Midrand on the 15 November, 2006. (Transnet presentation, 06 April 2009).
Earlier forms of contracts had clauses within them that were not acceptable to Transnet and did not allow for an amendment of clauses. The fundamental point is that these forms, and more importantly, the procurement methods they represented, were not readily interchangeable but were rather one-sided, to protect the employer’s interest. These forms of contracts were simply a range of choices, using different words, to address essentially the same need.
Therefore, the most adaptable contract is the current NEC form. The NEC form makes provision for such requirements to be inserted as additional clauses at “Option Z”. This form allows for a choice of options that are risk-related. The trend in construction procurement worldwide is towards design-and-build projects. One of the great strengths of the NEC is precisely its modular structure. It is, therefore, more easy to change than the other families of forms to different bases for pricing and to different bases for design liability. If implemented well, by parties committed to its use and to understanding how it is intended to work, the NEC offers considerable potential advantages over the more traditional families of forms (Transnet presentation, 06 April 2009).