"...So what about that contract?..."

Hi All,

How are we doing?

We know that the contract is quite an important "protector" of value for both: the customers and the supplier as well as all of the subsuppliers.

It looks at the big picture from the commercial, legal, time & technical perspective.

Nevertheless - what I find in the industry is that certain options are not sufficiently exercised. Baaa... some contract types are not as known because usually people simply think - "it is just a contract".

Still - there are many different types:

1. NEC3 & its successor NEC4 (with couple of interesting new options like Strategic Alliance & Design, Build & **Operate**)

2. JCT

3. FIDIC

CASE STUDY

The best case study I found that fully utilises the strength of contract is Heathrow Airport expansion. They used NEC3, ECC type, option C - target cost with the activity schedule.

https://www.designingbuildings.co.uk/wiki/NEC_Option_C:_Target_contract_with_activity_schedule

So what were the main benefits?

https://www.designingbuildings.co.uk/wiki/Procurement_of_Heathrow_T5

To start with:

1. The supplier & the customer have a target cost to work towards.
2. If the job is over budget - they both share that cost.
3. But if it is under - they both share the savings in the predefined manner.
4. In other words - it is an incentive for behavioural change to look for cost saving opportunities **together**.

1. Secondly - if you think about it. Heathrow Airport - a huge customer.
2. Main suppliers - usually multimillion businesses.
3. Subsuppliers to main suppliers - majority of them are not-so-big fishes in a big ocean with limited budget and resources. At the same time - majority of the risk & responsibility is exactly on subsuppliers.
4. This means that especially subsuppliers must put a lot of business effort onto the protection of the contractual interests which takes people & time away from the delivery of the job.
5. And here is the point - so what Heathrow Airport decided to do is to take a novelty approach. They said that all the costs associated with the risk related to the construction of terminal 5 is gonna be covered by Heathrow Airport.
6. This resulted in the fact that suppliers & subsuppliers could focus on the proper delivery of the project elements instead of looking behind their backs on the costing in case of non-compliance of legal elements. It is all about - where you put your people's focus.
7. That's why it's been said that the construction of the multi-billion Heathrow Terminal5 has been a tremendous success as it was delivered timely (just compare with construction with Wembley stadium or even better - Berlin Brandenburg Airport with its opening initially scheduled for 2011 and current, optimistic in 2020... no comment), well commercially, without unnecessary litigation & currently "T5" is year-after-year award winner for the best terminal in the world.

So the question is - how do you utilise contract options in your business to change the culture and optimise project delivery because the right tools are just under your nose?

Thanks,

Eric Tomaszewski