Contract Incentive?
Apologies for another post in such a short period from my last one; I will try and keep it short. In the last month the tunnel vent project seems to have reached the ‘money grabbing’ stage that Gregg and Steve described in their phase 1 lectures … the budget has run out, instructions have dried up and the client (Crossrail) is looking over our shoulders.
In contrast to many projects for commercial clients the Tunnel Vent NEC 3 ‘cost plus’ agreement is geared to incentivise quality above programme, cost or anything else. Therefore, bizarrely, there are no programme-linked milestone payments or costs for over-runs; all that the contract allows for is the reduction of the contractor’s fee. This is illustrated in the graph below (the risk element covers insurance costs):
ATCjv cost profile showing tapering reduction in fee past end date
The main way the client is looking to claw back funds is to find disallowed costs… basically finding evidence that we are incompetent or cutting corners. As a result at the point of the project when the contractor (ATCjv) should be concentrating most on the installation phase we are instead trying our hardest to cover our tracks with EWNs and hide mistakes behind other contractors delays.
I’m not sure how many sites would finish on time if their incentive scheme was set up in this way? I look forward to see if the Elizabeth Line opens on time in summer 2018….
Holdfast Training Services Trial Blog 
Next UK election 2020 so a delayed opening to just before someone wants to demonstrate that ‘things have got better’ and folks want photos of ‘ribbon cutting in high vis’ might be very palatable if there is a good scape goat for the delay…
Mark,
There are no bonuses or liquidated damages on your contract at all?
WE have an NEC 3 target cost contract with a 50:50 pain gain. The emphasis in this contract is on creating a close working team and the accounts are open book. However we are also incentivised on programme. As well as the pain:gain share we have milestone bonuses (i.e. an extra amount and not part of the project sum and liquidated damages of around £70k per day if we miss the connection window to the Lee Tunnel.
Tony
Evening Tony,
There used to be incentives and liquidated damages, however this was all written out by the client over a series of supplemental agreements in return for a fixed increase in our fee. The driver for these new agreements were delays to the civil contractors; the civil works are not finished on time, despite their own contract incentives. As our MEP install was progressively delayed and our compensation claims were getting pretty epic.
The only way ATCjv would agree to the new agreements was to remove the penalties (and hence most of the programme risk).
In comparison most of the civil contractors have around 15 incentive milestones (give or take a couple for different sites). If the early payments are missed the sum is moved to the next milestone in a ‘rollover’ effect. The end result of this is that most of the civil contractors are taking a death or glory approach where they are sacrificing effort on the intermediate incentives in the hope that they will pull it our of the bag with the final milestone at the end of the project.
Although this agreement is good for ATCjv it has been bad news for our commercial director. The contract allows the client to ‘remove’ any member of our staff (clause 24.1). They used this to good effect to sack our commercial director as soon as the new agreement was signed.
Wouldn’t happen working for the Queen.