We don’t need no other contracts, all in all, it’s just another brick in the wall
The Institute of Civil Engineers (ICE) and the British Institute of Facilities Management (BIFM) have recently announced that they are going to explore the potential to develop a completely new form of contract specifically for the facilities management (FM) sector.
This move appears to have come as a result of the increased use of the NEC3 and NEC4 Term Service Contract (TSC) for FM and feedback from industry reporting that the TSC needs heavily amending in order to make it work for FM.
This article is a thought leader to help contextualise the debate and provide some insight into the issues we at NE Consult have found since we first started using the TSC when it was published in 2005.
So what, you may ask, does the ICE know about FM? Good question, and the answer until fairly recently was nothing, they were comfortably numb you might say.
Back in 2002 the ICE published a term version of their now defunct conditions of contract. This contract was widely used in the UK and further afield for maintenance work in the heavy engineering sectors such as highways, power, rail and water. All of the work in these contracts was ordered by an Engineer’s Representative and paid for using a measure and value approach based on a schedule of rates and prices.
Shortly after this the first edition of the TSC arrived on the scene bringing with it the modern style of the rest of the NEC family of contracts, which are based on good practice in contract management techniques and a collaborative ethos. You may or may not know that NEC contracts are published by Thomas Telford who are owned by the ICE.
The TSC went further than the old ICE conditions in that you could have services in the contract that didn’t need ordering. These services start at the beginning of the contract and are provided continuously throughout in a fairly stable state e.g. planned maintenance. There is also an option for services to be ordered by a Service Manager. This option could be used in addition the services being carried out continuously, or as the sole method of getting work done.
Since 2005 the TSC has risen to dominate the service contract scene. It was being used by the heavy industries that had used the old ICE conditions, but unbeknownst to the good folk at NEC it was increasingly being adopted in other areas, including building maintenance and FM, which eventually led to the endorsement by BIFM in 2013. Therein lies the nub of problem, when NEC drafted the TSC it was never anticipated that it would be used for FM.
This meant many of the features that people in FM have grown to know and love over the years using other contracts were missing. Like an option for a semi-comprehensive contract? Or how about measure and value based on a published schedule of rates like the old measured term contracts? What about a daywork contract based on tendered labour rates with percentage uplifts? None of these features were available in the TSC, not by design, it’s just that NEC just didn’t know that these contracting strategies existed and so didn’t provide for them.
When you get further into the detail, there are other examples of features that don’t appear in the TSC compared to other contracts:
- a procedure for ordering emergency, reactive or minor jobs
- provisions for design by the contractor
- provisions for stating response and repair times
- order based final accounting
- measurement and valuation based on schedule of rates
- ability to use a percentage adjusted published schedule of rates
- a set period for defect rectification on ordered works
Now don’t misunderstand where we’re coming from here, we’re not saying the other contracts being used are better than the TSC as by and large they’re not (which is surely evidenced by the huge take up by industry, you don’t just have to take our word for it).
We did an analysis of the TSC’s main competitors for NEC some years ago and the deficiencies of the others were in our opinion made up for by the benefits of the NEC approach. However in order to make the TSC work for the FM sector it has to be butchered by your lawyers which is surely what use of a standard form of contract is designed to do away with?
We’ll give you an example, let’s take a look at the Crown Commercial Services (CCS) FM Framework.
The published version NEC3 TSC in it’s entirety has 60 pages and around 27,000 words. The CCS framework contract is 129 pages with nearly 34,000 words which excludes the other 60 pages and 27,000 words of TSC that you need to be able to make sense of it all! So there are more words written by the CCS lawyers than were written by NEC, why is this? What happened?
In NEC contracts there is a feature called option Z clauses that permits bespoke amendments to be made to the published versions. In the CCS framework there are 52 Z clauses that account for most of the 129 pages and 34,000 words. That isn’t 52 individual clauses by the way, that’s 52 headings, there are many more clauses than that, the first clause heading contains 31 separate clauses so you do the math as they say in American sit coms!
Now we can’t blame NEC for all of these amendments, NEC as suite of contracts is jurisdiction neutral. That means it is not designed as a domestic contract solely for use in the UK, it’s designed for use internationally therefore any UK legislative requirements have to be added to it. However an awful lot of the Z clauses are addressing the holes left between the TSC and other industry standard forms of contract. This is surely a telling sign that something needs to be done to the TSC?
The NEC4 version of the TSC published in 2017 has addressed some of the basic omissions from the NEC3 version like the ability to extend the length of the contract, periodic final accounting to fit with accounting periods, and a simple mechanism for adjusting rates and prices in line with inflation. NE Consult has been lobbying NEC since 2005 to get the TSC fit for purpose so we’re pleased to see many of our recommendations appear in the published contract. However, there are still some big holes in the TSC wall.
This said we wouldn’t advocate that all of the holes are filled with more brick-like clauses.
For example we struggle with the concept of a comprehensive or semi-comprehensive contract that has the contractor gambling on how many asset failures there may be over a long period of time. We’ve never been able to work out why anyone thought this approach was considered sensible other than the fact that it cuts down on the amount of paperwork needed to get things done.
Also, why would you pay a contractor each month based on 1/12th of an annual sum even if have problems with the quality or performance of the service?
For most clients these approaches offer poor value for money and are out of date in the modern, data rich, IT enabled world we live in. There are some things that the FM industry needs to take a long hard look at and consign to Room 101.
So how has the TSC become so popular with industry if it’s so badly flawed?
The prestigious endorsements by government and BIFM have obviously played a part in stimulating the market. So has the demise of the Government General Conditions of Contracts or GC/Works as it was more commonly know which were left to wither and die once the government put it’s weight behind NEC. Prior to 2009 the CCS FM Framework (then operated by the Office of Government Commerce used GC/Works/10 for their FM framework, after that they moved to the TSC. If you’re in the UK public sector you almost have to justify why you wouldn’t use the NEC, rather than the other way round.
That’s rather pessimistic though, if it was no good surely over the last 13 years I would have had at least one client who tried the TSC, didn’t like it, then next time they re-procured a service used something else? Not a single one in fact using the TSC has become a no brainer for them, they’d find it strange if I even asked them why they didn’t try a different contract. How so? In our opinion it’s the collaborative ethos and good practice in contract management that wins the day every time.
So do we need another contract? In our opinion, no. What we need are some additional features to give more flexibility to clients procuring FM services, and we need to work with the FM industry, in the same way that we’ve worked with the construction industry, to help it modernise and improve the way it procures and manages contracts.
So there you have it, hopefully this article will help to set the scene for debate and discussion in industry. Please take part in the research study which can be found here:
We here at NE Consult look forward to hearing the results from the study at this year’s NEC User’s Group Conference in June and continuing to be involved in the debate about the future of the TSC. The TSC is a good contract, now let’s make it a great one.
We don’t need no thought control, but we certainly do need education, it’s the only way we ever improve.
© Neil Earnshaw, NE Consult, 11th May 2018
Note about the author:
Neil Earnshaw has worked with NEC since 2007, since then he has provided training and consultancy to thousands of people who use NEC contracts across the UK and Europe. Neil published the first case study of the TSC being used for FM and has been an advocate for the TSC ever since. He continues to work with industry to improve understanding and use of all NEC contracts, and with NEC to help improve the TSC for the FM sector.