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Network Rail and the NEC: The collaborative journey so far

Robert Gerrard, NEC Users’ group secretary, and Phil Bennett, Network Rail’s finance and commercial director for Infrastructure Projects (Southern), discuss their partnership’s NEC journey so far.

In 2014, Network Rail’s decision to award four five-year bespoke framework contracts based on the NEC3 form of contract demonstrated a landmark moment in infrastructure project management. The contracts were awarded to four multifunctional framework contractors, representing a total throughput of £1.2bn and covering a portfolio of more than 500 projects across south-east England.

Part of a trial designed to explore the benefits of collaborative working, the four contracts will see the refurbishment, renewal and enhancement of Network Rail’s civil engineering and building assets, as well as multi-disciplinary pieces of activity which include tracks and signalling. Each framework is expected to turn over approximately £50-60m per year.

With the NEC suite of contracts established on the principle of inspiring and encouraging best practice in project management within a partnering environment, it seems this founding message has certainly resonated with Network Rail and many leading infrastructure organisations.

In fact, just a year after the framework announcement, Network Rail has recently been awarded the ‘Client of the Year’ accolade at the inaugural NEC Users’ Group Awards.

Such is the success of the collaboration in sending a clear message that Network Rail is changing the way it manages its supply community from a contractual perspective, and improving its transparent risk allocation, two people on either side of the collaboration sat down to discuss it.

Robert Gerrard (RG) – NEC Users’ group secretary: What are the main reasons behind Network Rail’s recent decision to start using NEC contracts?

Phil Bennett (PB) – Network Rail’s finance and commercial director for Infrastructure Projects (Southern): When we were putting the contract strategy together for the multifunctional frameworks in the Southern area, we were looking to move away from traditional master-servant relationships and drive a new culture into the way we did business with our suppliers.

We set out what we wanted to achieve, and then looked in the market for the best contractual vehicle to help us achieve our vision.

The NEC closely matched what we were looking for, and its recognition in industry as the most collaborative of the standard forms of contract allowed us to send a real message of intent about what we wanted to do.

The frameworks are underpinned by the concept of working together to create a spirit of mutual trust and co-operation, words which actually appear in Clause 10.1 of the NEC. We wanted this positive contract to encourage people to take decisions for the common good and collaborate across the supply chain to reach a successful project outcome.

As well as the trial on the Southern frameworks, NEC is also being used on a smaller number of standalone projects, such as a £100m scheme to enhance the station at Gatwick Airport, designed to increase its capacity with an additional platform, changes to the rail infrastructure and new links to the airport site.

RG: Why do you think collaboration is the way forward for Network Rail?

PB: Collaborative contracts have been at the heart of some of the most successful projects we’ve seen over the last few years. You’ve only got to look at what was delivered at London 2012 for proof that working together can deliver outstanding project outcomes.

Construction projects are challenging, particularly in the rail environment; situations frequently arise that can’t be anticipated at the outset, and project teams have to work together to resolve them.

Adversarial behaviour takes up a lot of time and energy that is far better channelled into a positive relationship, as facilitated by the NEC.

RG: You’ve mentioned the importance of Clause 10.1 – acting in a spirit of mutual trust and co-operation. How do you think people receive Clause 10.1? How are you putting it into practice?

PB: We saw Clause 10.1 as fundamental to the core of what we were trying to achieve, and created bespoke mechanisms in the contract to encourage mutual trust and co-operation.

We put a lot of emphasis on a ‘person for the job’ approach, selecting suppliers with the right behavioural attributes at the very start of the process. It’s our belief that every stage of the project should progress in accordance with, and with frequent reference to the terms of the contract, so that issues are dealt with in a clear, concise and transparent way.

RG: What are the main benefits you’ve noticed so far, as a result of introducing NEC contracts?

PB: At the outset, we aimed to create an environment where risk management isn’t about risk transfer; it’s about the identification and mitigation of risk, to eliminate the consequences altogether.

Many traditional contract forms simply look to make risk transparent and then allocate it; we tried to drive a positive relationship around risk, a vision that is aligned closely with the principles of the NEC.

Working together to address risk at the earliest opportunity has enabled our projects to increasingly deliver both on time and at a lower unit cost, thanks to a culture based on prevention rather than cure.

We’re constantly encouraging people to see the opportunity that comes with a move away from the norm: the ability to reduce time, waste and cost.

Although we have cost Options A, C and E in our frameworks, we operate a policy that that the primary option is Option C, and that the others are only there for use in exceptional circumstances.

We’ve introduced a concept of whole-project target cost, so that the contract is incentivised not only against the contractor’s costs, but the employer’s costs as well – elements that would traditionally sit with the client.

We still allow for compensation events and the contractor is still entitled to an adjustment of his prices, but we’re encouraging each side to think about the other’s business objectives, and maximise the chances of success for the project as a whole. It isn’t possible for a situation to arise where one party wins and the other loses.

RG: Do you think Network Rail’s decision to adopt NEC contracts has prompted a shift in the way projects are set up?

PB: People aren’t necessarily as familiar with the NEC as they are with some of the older forms of contract, and, as a result, they have to read it thoroughly in order to appreciate how it’s intended to work. We’ve seen this translate into better quality tender documentation, and a spirit of mutual understanding from the outset.

Specific to the set-up of our frameworks in the Southern region, we invested a significant amount of time, effort and money in training the project teams who would be responsible for their delivery. We designed a single, comprehensive training programme that was rolled out to over 300 people, both clients and contractors, so that everyone received the same message and each side could understand any issues or concerns the other may have.

RG: An issue that NEC users have recently raised is that of wrongfully inserted Z clauses and the fine line between what constitutes fine-tuning or ambiguity to users. What has been your approach when tailoring the standard contract to meet the specific needs relating to Network Rail projects?

PB: It’s important to note that we’re using NEC contracts because of the values on which they are based, and have done nothing to compromise their integrity in key areas such as compensation events and early warning processes.

The clauses we’ve inserted are around simple things such as claim handling: we put an additional clause in to cover railway damages, and inserted a clause in respect of the fact that we operate project insurance. Where we have made changes, we’ve incorporated them into the body of the contract, rather than adding them as Z Clauses, which I believe makes it an easier document to read. At the tender stage we made a marked-up version available, so that tenderers could see straight away where we had made alterations.

RG: Imagine you’re sitting here in five years’ time; the trial period is over – what would you like to see?

PB: There will always be the odd occasion where other forms of contract might potentially be more applicable, but I would like to think that generally speaking, NEC contracts will become seen as a common form, and that it will not be considered unusual for Network Rail and the wider rail industry to be using them.

From Network Rail’s point of view, we picked up ‘Client of the Year’ at the NEC User’s Group Awards in April, and were shortlisted for one of our projects. We’d like to change that next year and take home both. The awards are a vehicle for us to communicate the good work we’ve been doing, and our intent to operate in a transparent, collaborative fashion. We are firmly committed to having good working relationships with our suppliers, and to driving a collaborative culture down the supply chain to secure the continued success of our projects in the years to come.

RG: Lastly, as part of Network Rail’s commitment to NEC, an initial tranche of your team undertook the ECC project manager accreditation programme. Can you tell us about your experience of the programme, and whether it has been useful to both yourself and your team? Has it impacted on Network Rail’s project management operations?

PB: We took an initial tranche of people through the accreditation programme in November and December last year as a pilot, to understand how we felt about the course. Having gone through it myself, I can personally vouch for the fact that we found it extremely useful, and we are putting a further two tranches through the course.

The assessment component at the end of the course is of particular value to me in my role as team leader, in that it gives me confidence that those who pass will be able to effectively administer relationships with the supply chain, and generate the right outcomes for the project.

The NEC family of contracts

In 1985 the ICE (Institution of Civil Engineers) decided to lead a fundamental review of alternative contract strategies for civil engineering design and construction with the objective of identifying the need for good practice. After much discussion and consultation, this review resulted in the publication in 1991 of a consultative edition, and in 1993 of the first edition of the New Engineering Contract (NEC). Since then, in response to industry demands, further standard forms of contract have been produced, using the same principles as were used in the NEC first edition.

NEC is a division of Thomas Telford Ltd, which is a wholly owned subsidiary of the ICE, the owner and developer of the NEC.

The NEC family of standard contracts all have the following characteristics:
• Stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract
• Can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location
• Is a clear and simple document – using language and a structure which are straightforward and easily understood

Source: NEC