i

AN ANALYSIS OF NEC 3 CONTRACT AS A COST

CONTROL MEASURE ON BUILDING PROJECTS: A

CASE OF PRIVATE SECTOR CONSTRUCTION

INDUSTRY IN ZIMBABWE

BY

FUNGAI MARTIN SIMBA

N01415751L

Supervised by Mr A. Muza

A Dissertation submitted to National University of Science and Technology

in partial fulfillment of the requirements of

Master of Science in Construction Project Management

Department of Quantity Surveying

Faculty of the Built Environment

August 2016

ii

ABSTRACT

The construction industry had been characterized by adversarial relationships between clients

and contractors, and this was partly attributed to risk apportionment in the traditional forms

contracts (Chan, 2006). That relationship resulted in contractors seeking to cushion themselves

from excessive risk by claiming more and pricing exorbitantly. NEC 3 contract was introduced

in the early 90’s in the UK in response to some of those problems. The NEC 3 contract presented

peculiar improved project management principles (Gould, 2007). This research sought to analyse

NEC 3 as a cost control measure and its suitability on the construction industry in Zimbabwe,

particularly in the private sector. The research design was mainly qualitative in nature because

the research sought to obtain underlying information and attitudes. Snow balling technique as a

subset of purposive sampling was used to reach out for information by way of referrals because

the NEC 3 contract was not very popular in Zimbabwe (Redmond. 2009). Literature on related

studies, records and publications were used to collect the secondary data. Questionnaires and

interview guides were used to collect the primary data. The response rate from the questionnaires

was 72% while on the interviews all the respondents participated. The results showed that the

inclusion of the programme of works in the contract and the early warning system on risk

management of costs were particularly highly commended as noble cost control measures. The

time-bar concept on compensation events and target costing were generally accepted as cost

saving mechanisms, but were considered relatively new concepts that needed education and

awareness. Partnering/ collaboration approach as a means to minimising adversity between

parties was considered as a challenge to establish in Zimbabwe due to a depressed economy

where late or non-payments from funders had become commonplace, let alone the rampant

defaulting contractors. However, the role of Project Manager in ‘shouldering’ some of the

responsibilities could go a long way in improving relations and subsequently saving costs.

Further research could explore the time management aspect of the NEC 3 contract on the

Zimbabwean construction industry.

iii

ACKNOWLEDGEMENTS

I would like to acknowledge the supervisory role that Mr A.Muza provided in the entire research.

His wide knowledge on contracts management was very useful. I am also indebted to my

lecturer, Ms Mangore for her guidance on the research methods class. Much appreciation is

extended to my wife, Tapiwa Simba, who gave not only moral support but her academic prowess

on research writing. Furthermore, I am thankful to my brother Farai Simba, mums and friends for

their consistent support. I also acknowledge God’s hand in everything.

iv

Table of Contents

ABSTRACT .................................................................................................................................................. ii

ACKNOWLEDGEMENTS ......................................................................................................................... iii

LIST OF TABLES ....................................................................................................................................... vi

LIST OF FIGURES .................................................................................................................................... vii

LIST OF ACRONYMS ............................................................................................................................. viii

DECLARATION ......................................................................................................................................... ix

CHAPTER 1 ................................................................................................................................................. 1

Introduction ............................................................................................................................................... 1

1.0 Background ............................................................................................................................... 1

1.1 Problem Statement .................................................................................................................... 3

1.2 Main Objective ................................................................................................................................ 4

1.3 Main Research Question ........................................................................................................... 4

1.4 Justification of Research ........................................................................................................... 5

1.5 Scope of Research ..................................................................................................................... 5

CHAPTER 2 ................................................................................................................................................. 7

Literature Review ...................................................................................................................................... 7

2.1 Introduction ............................................................................................................................... 7

2.1.1 Standard forms of contracts ..................................................................................................... 7

2.2 History of NEC 3 contract ........................................................................................................ 7

2.3 NEC 3 contract overview .......................................................................................................... 7

2. 4 Suite of NEC 3 documents ........................................................................................................ 9

2.5 Procurement routes ................................................................................................................. 10

2.6 Criteria used in selecting standard forms of contracts ............................................................ 12

2.7 Discussion on the studies and recommendations of NEC 3 .................................................... 14

2.8 Legal framework of Procurement in Zimbabwe on construction ........................................... 16

2.9 Critical analysis of NEC 3 contract a cost control measure .................................................... 17

2.10 Extent of use of NEC 3 Contract in Zimbabwe ...................................................................... 21

2.11 Conclusion .............................................................................................................................. 21

CHAPTER 3 ............................................................................................................................................... 22

Research Methodology ........................................................................................................................... 22

3.0 Research methodology / strategy ............................................................................................ 22

v

3.1 Description of study area ........................................................................................................ 22

3.2 Target population .................................................................................................................... 22

3.3 Sampling Techniques .............................................................................................................. 23

3.4 Data Collection techniques ..................................................................................................... 23

3.5 Secondary Data ....................................................................................................................... 25

3.6 Results presentation ................................................................................................................ 26

3.7 Data analysis ........................................................................................................................... 26

3.6 Ethical Considerations ............................................................................................................ 26

3.7 Validity of the data .................................................................................................................. 27

CHAPTER 4 ............................................................................................................................................... 28

Results, Analysis and Discussions .......................................................................................................... 28

4.0 Introduction ............................................................................................................................. 28

4.1 Results from Section 1 of the questionnaire ........................................................................... 28

4.2 Results from Section 2 of questionnaire ................................................................................. 30

4.3 Results from Section 3 of the questionnaire ........................................................................... 31

Table 4.4.2 shows the average responses deduced for each cost control measure as follows: ........... 38

4.5 Results from the Interview guide ............................................................................................ 39

4.6 Method of analysis on the interviews...................................................................................... 40

4.6.2 Analysis from the ‘familiarity’ category ............................................................................. 41

4.6.3 Analysis from the ‘economic environment’ category ......................................................... 42

4.7 Discussions ............................................................................................................................. 43

CHAPTER 5 ............................................................................................................................................... 46

Conclusions and Recommendations ....................................................................................................... 46

5.0 Introduction ............................................................................................................................. 46

5.1 Conclusions on the objectives of the study ............................................................................. 46

5.2 Recommendations ................................................................................................................... 48

5.3 Recommendation for future studies ........................................................................................ 49

REFERENCES ........................................................................................................................................... 50

APPENDIX 1 .............................................................................................................................................. 54

QUESTIONNAIRE ................................................................................................................................ 54

APPENDIX 2 .............................................................................................................................................. 58

INTERVIEW GUIDE ............................................................................................................................. 58

vi

LIST OF TABLES

Table 3.4.2: Target Population of Consultants, Clients and Contractors on Questionnaires 24

Table 3.4.3: Classification of the Sample 24

Table 3.4.4: Target population of Consultants, Clients and Contractors on Interview Guide25

Table 3.4.5: Classification of the sample 25

Table 4.4.1: Summary of respondents’ perspective on the NEC 3 contract 37

Table 4.4.2: Average response on cost control measures 38

Table 4.4.3: Average responses on all cost control measures 38

Table 4.6.1.1: Categories / Indexing of results from interviews 41

vii

LIST OF FIGURES

Fig 4.1.1: Respondents Experience – Questionnaires 29

Fig 4.1.2: Professional Respondents 29

Fi g 4.2.1: Procurement Methods 30

Fig 4.2.2: Extent of use of standard forms of contract 31

Fig 4.3.1: Analysis of ‘Time-barring’ for Compensation Events clause 32

Fig 4.3.2: Programme of works to be part of contract 33

Fig 4.3.3: Removal of Provisional Sums 34

Fig 4.3.4: Gain/ Pain share financial gain/ loss 35

Fig 4.3.5: The Project Manager for supervision 35

Fig 4.3.6: Early warning system on risk management 36

Fig 4.5.1: Years of experience for interview respondents 39

Fig 4.5.2: Professionals interviewed 40

viii

LIST OF ACRONYMS

CECCZ - CIVIL ENGINEERING CONDITIONS OF CONTRACT IN ZIMBABWE

CIFOZ - CONSTRUCTION INDUSTRY FEDERATION OF ZIMBABWE

ECC – ENGINEERING AND CONSTRUCTION CONTRACT

FIDIC - FEDERATION INTERNATIONALE DES INGENIEURS-CONSEILS

IAZ - INSTITUTE OF ARCHITECTS ZIMBABWE

ICE - INSTITUTION OF CIVIL ENGINEERS

JCT 80 SBC - JOINT CONTRACTS TRIBUNAL 1980 STANDARD BUILDING CONTRACT

JV – JOINT VENTURE

PM- PROJECT MANAGER

NEC - THE NEW ENGINEERING CONTRACT

ZBCA – ZIMBABWE BUILDING CONTRACTORS ASSOCIATION

ZGCC4 - ZIMBABWE GENERAL CONDITIONS OF CONTRACTS

ZIE - ZIMBABWE INSTITUTE OF ENGINEERS

ZIQS – ZIMBABWE INSTITUTE OF QUANTITY SURVEYORS

ix

DECLARATION

This work has not been previously published to my knowledge or written by another person, and all

literature obtained from other sources was acknowledged.

…………………………………………………. ………………………………………

Signature Date

1

CHAPTER 1

Introduction

1.0 Background

The construction industry has often been viewed as antagonistic, full of disputes and

confrontational in nature (Dickson, 2013). This was partly blamed on the old standard forms of

contracts that were viewed as adversarial between clients and contractors (Chan, 2006).

Adversity primarily stemmed from the risk allocation between two contracting parties

(Frederiksen, 2002). Most traditional contracts had the contractor bearing most of the risk in a

project and that imbalance on risk allocation resulted in most contractors developing a negative

attitude towards costs and claims (Chan, 2006).The introduction of The National Engineering

Council (NEC 3) as a standard form of contract to the construction industry was in response to

the adversity among contracting parties (Dickson, 2013).

Further to addressing adversity, the NEC 3 contract had also been applauded for its project

management principles that Kings (2005) described as effective in achieving a better project

outcome. Gould (2007) stated that NEC 3 contract had features such as early warning system, a

pro-active approach to compensation events, gain/pain share allowances as ways to improve the

management of resources.

In the UK, construction was shifting from a traditional procurement approach where all risks

were transferred to the contractor by considering other standard forms of contracts such as the

NEC 3 (Latham, 1994). The success story of the construction activities for the UK 2012

Olympics was squarely attributed to the use of NEC 3 contracts. It delivered 45 out of its 46

projects (Dhanushkodi, 2012).

2

In the Sultanate of Oman, a study was carried out by Rashdi (2010) to evaluate the use of

standard forms of contract on public sector construction projects and to provide

recommendations to traditional contracts that had not been changed since 1980. Conclusions

made stated that the NEC 3 contract had addressed dispute resolutions and sub-contractor

management in a more contemporary approach in comparison to the dated standard forms that

Sultanate of Oman was using (Rashdi, 2010).

A study on Malaysia’s construction industry by Chan (2006) revealed that its public sector

attempted to adopt NEC 3 contract in a bid to resolve many disputes, claims and litigation on

construction projects. It was however concluded that Malaysia was not ready for total adoption

of NEC 3 contract because of many ‘environmental’ factors and chief among them was that

professionals in the industry were still reluctant to change the role of an Architect. Malaysian

government however, commended NEC 3 for its simplicity on language and favourable contract

adjudication (Chan, 2006).

According to Stiedl (1999), there was need for new forms of contracts in Zimbabwe which could

address the labour issues for workers in the construction industry. He cited that the contract

practice in the civil engineering works had been to amend the existing complex contracts or to

draft some poorly designed bespoke contracts that were seriously lacking on certain fundamental

labour issues (Stiedl, 1999).

According to Gombera and Okorroh (1999), the Zimbabwean economy had made efforts over

years to provide public facilities using traditional procurement approaches to contracts.

However, the ever changing economic environment required improved contracts management in

a construction industry that was lacking goodwill, trust and teamwork between the parties

(Gombera and Okorroh, 1999).

A study by Mukamba (2007) on the indigenous contractors’ requirement to adopt project

management concluded that Zimbabwe was still using the Zimbabwe General Conditions of

Contracts (ZGCC4) and Civil Engineering Conditions of Contract in Zimbabwe (CECCZ) and

those were derived from the JCT and GCC contracts in the 1950s. Further to that, he stated that

3

the indigenous contractors were reluctant to use other forms of contracts such as NEC because

they were familiar with traditional ones that were also upheld by the Government of Zimbabwe

(Mukamba, 2007). However, in a newspaper article of Zimbabwe’s Sunday Mail dated 15

March, 2015, the NEC 3 contract was used on construction projects at Unki Mine in Zimbabwe.

In view of the studies above, NEC 3 contract was generally cited by researchers as a contract that

mightoffer better project management principles. Studies noted its effectiveness on reducing

adversity among contracting parties, contemporary methods to contract management and its

flexibility on language and use. However not so much was said specifically about the NEC 3

contract as a cost control measure on the construction projects. The research would therefore

seek to fill that knowledge gap by zeroing in on the analysis of the cost controls that the NEC 3

contract offered and their suitability on the construction industry in Zimbabwe.

1.1 Problem Statement

The use of NEC 3 contract on projects in Zimbabwe was not very popular according to Redmond

(2009) in a construction industry that was mainly dominated by traditional contracts (Mukamba,

2007). The adversity, cost uncertainties and lack of cost saving mechanisms characterized by

most traditional contracts on projects was criticized by many in the construction industry, hence

the drafting of NEC 3 contract (Chan, 2006). Zimbabwe was no exception to those problems as

stated by Mukamba (2007).

The NEC 3 contract was remarked by Dickson (2013) that it was a cost saving tool. The contract

had features such as compensation events which required pro-activeness from the contractor to

claims by giving a notice within a specified period of becoming aware of the risk, for their claim

to be entertained (Gould, 2007).Most traditional contracts allowed for claims to be attended to

in-retrospect; something that did not encourage risk mitigation and possible cost saving (Gould,

2007). The research would analyse the time-barring approach to claims and how suitable it was

in the Zimbabwean context.

4

Further to that the research would also analyse issues such as the fact that provisional sums were

removed in the NEC 3 contract due to high risk of cost uncertainty on a project (Doig, 2014),

early warning systems, allowed and disallowed costs, target costing and many other features

peculiar to the contract. The study would give a position on the suitability of cost control

measures that the NEC 3 contract offered to the construction industry in Zimbabwe.

1.2 Main Objective

To investigate the suitability of cost control measures in the NEC 3 contract to the construction

industry of Zimbabwe.

1.2.1 Specific Objectives

1.2.1.1To investigate the suitability of using NEC 3 contract with the current Legal framework

on procurement of construction projects in Zimbabwe.

1.2.1.2 To evaluate the suitability of NEC 3 contract as a cost control measure on projects in

Zimbabwe.

1.2.1.3 To investigate the extent of use of NEC 3 contract in the Zimbabwean construction

industry.

1.3 Main Research Question

How suitable are the cost control measures in the NEC 3 contract to the construction industry in

Zimbabwe?

1.3.1 Specific Research Questions

1.3.1.1 How suitable is the use of NEC 3 contract with the current Legal framework on

procurement of construction projects in Zimbabwe?

5

1.3.1.2 How is suitable is the NEC 3 contract as a cost control measure on projects in

Zimbabwe?

1.3.1.3 What is the extent of the use of NEC 3 contract in the Zimbabwean construction

industry?

1.4 Justification of Research

The research sought to analyse the NEC 3 contract cost controls measures and how those could

be applied to the construction industry in Zimbabwe. The exercise would assist in determining

whether the measures could help in ensuring saving of costs on a project and having cost

certainties for budgeting purposes.

The NEC 3 contract was currently administered on private sector projects in Zimbabwe, but

according to Mukamba (2007) the traditional contracts were still dominating on most projects.

The previous studies by Chan (2006) and Rashdi (2010) recommended the need to move away

from traditional contracts which were characterized by lack of good project management

principles. The problems included the confrontational relationship between the contracting

parties, non pro-active approaches to risk management and the subsequent negative attitudes by

contractors to pricing and claiming.

The study might therefore provide information which could help on decision making processes

on cost management issues on construction projects in Zimbabwe. It might also add to the body

of knowledge.

1.5 Scope of Research

The research had the introduction and the background in Chapter 1 which highlighted issues at

hand and the related studies that were done on the topic and the knowledge gap that needed

research. The same chapter provided the statement of the problem which stated that the

traditional contracts had been lacking on project management principles and in particular the cost

controls and how NEC 3 contract was introduced in response to some of those problems.

6

The conceptual framework of the study would be covered under the Literature Review of

Chapter 2. The chapter would define and explain the procurement theories, the overview of the

NEC 3 contract, concepts and discussion on related studies. The chapter would be guided by the

objectives of the study.

As a way of collecting information, a survey would be done through interviews and

questionnaires to collect the data from construction players in Zimbabwe. That should help to

obtain responses to answer the research questions. The results would be analysed, and

conclusions and recommendations drawn from that for the study.

7

CHAPTER 2

Literature Review

2.1 Introduction

The chapter provided in depth the theories and concepts on the subject under study (Baron,

2012). It was important to note that it was guided by the objectives of the study and would reveal

what other authors had written about the subject, the conceptual frameworks that existed and the

discussions about the literature (John, 2007). For the purpose of the study, the form of contract

that would be discussed was the NEC 3 contract.

2.1.1 Standard forms of contracts

The construction activities required terms of reference of who does what and who should bear

what risk (Tate, 2013). A standard form of contract was an agreement between contracting

parties with terms of conditions to achieve the set objectives on a project (Astrup, 2009). The

forms of contracts in the construction activities could be produced by publishing bodies and

standard in nature or they could be bespoke with basic elements of a contract (Tate, 2013).

2.2 History of NEC 3 contract

In the early 90’s the UK Government commissioned a Latham report on the NEC contract with a

view to improve relations between clients and contractors (Gould, 2007). Disputes and litigations

had been rife on construction projects and NEC 3 contract was drafted as a result of that

(Dickson, 2013). It was then adopted in the UK and worldwide as an alternative to traditional

contracts (Chan, 2006).

2.3 NEC 3 contract overview

A standard form of contract is a contract document that has terms and conditions and is prepared

by trade organizations or bodies and is agreed upon between two contracting parties (Chan,

8

2006). NEC 3 contract is one of the many standard forms of contracts in the construction

industry (Heaphy, 2010).

2.3.1 Core Clauses

The NEC 3 contract had 9 core clauses which were synonymous with every suit and should not

be amended as they help to maintain the philosophy of the NEC 3 contract which upholds good

management principles (Kings, 2005). These cover the general principles of the contract and

these include General, Contractor’s main responsibilities, Time, Testing and Defects, Payments,

Compensation Events, Title, Risks and Insurance and Termination (Gould, 2007).

2.3.2 Main Options

The core clauses were followed by the main option clauses. These were basically defining

pricing and payment system. According to Gould (2007), they included Option A-F as follows:

Option A - Priced contract activity schedule

Option B - Price contract - with Bill of Quantities

Option C - Target Cost - with activity schedule

Option D - Target Cost- with Bill of Quantities

Option E - Cost reimbursable

Option F - Management Contracting

These clauses were optional, and one needed to select one depending on the appropriate type of

payment and pricing mechanism for a particular project (Heaphy, 2010).

9

2.3.3 Dispute Resolution

There were two options namely W1 and W2. The option W2 was suitable for UK legislation and

could not be applied elsewhere, while WI could be applied worldwide (Kings, 2005).

2.3.4 Contract Data

The contract data included essential specifics for the project with the first part being the

employer’s and the second part is the contractor’s (Heaphy, 2010). The contract data had Works

Information and site information such as specifications and design responsibility between the

two contracting parties (Gould, 2007).

2.3.5 Secondary Options

The secondary options were mainly the inclusion of certain clauses depending on the needs of

the client and how they preferred to customize it (Gould, 2007). Mostly they covered for certain

peculiarities of a project and those could include retention, use of multiple currency,

performance bonds, advance bonds, change of law and so on (Kings, 2005).

2.3.6 Z-Clauses

The z-clauses were an option for amendments depending on what parties to the contract prefer to

be part of the contract (Gould, 2007).

2. 4 Suite of NEC 3 documents

The following list had the suites of different NEC 3 documents according to Rowlinson (2011):

Engineering and Construction

Short contract

Subcontract

Short Subcontract

Framework contract

Term services contract

10

Term services short contract

Professional services contract

Supply contract

Supply short contract

Adjudicators contract

According to Rowlinson (2011), the above suites were used for different scenarios of works and

the names ascribed help to describe that. For example the Engineering contract was used for civil

and building works that were relatively large (ibid). The Supply contract was used to administer

the procurement high valued goods and services such as purchasing a heavy plant or equipment

for construction and so on (Rowlinson, 2011).

The study was confined to the procurement routes which included traditional/ separate system-

both priced contract with activity schedule (re-measurable) and priced contract with Bill of

Quantities (lumpsum), target cost contract, design and build contract and management contract.

Procurement routes were a critical part of project management that ensured successful

implementation of a construction project (Mathonsi et al. 2011).

2.5 Procurement routes

It was advisable that all factors that would help achieve the set goals of a project were attended

to before selecting a procurement route (Ramus et al. 2006).

2.5.1 Traditional System (separated)

This procurement route involved separate preparation of the designs by the designer who could

be architect or engineer appointed by an employer without the involvement of a contractor

(Rashid et al., 2006).The contractor was then asked to tender for a job with already prepared

designs. The contract type was usually lump sum or fixed price, but could have clauses for

fluctuations and variations that could increase or decrease the contract sum (Rashid et al., 2006).

11

There could also be traditional re-measurement procurement route where the actual quantities in

the Bill of Quantities were re-measured post contract to ascertain the actual value of the works.

This was usually often where the extent of works was not known at the initial stages and only

measured when the work had been done (Ramus et al., 2006).

2.5.2 Design and Build

The design and build procurement route involved the contractor participating in the design of the

project as well as its construction. It was usually done to make the contractor a point of

responsibility and best suited when the work was specialized. However the extend of the

contractor’s responsibility on the design was usually stated in the contract (Mathonsi and

Thwala, 2011).

The contractor might be tasked by the employer to take full responsibility of the design and

construction in which case he could have in-house designing team and provided everything to the

completion of the project (Miller et al., 2009). An employer might initially work with a team of

designers who would later transfer to the contractor (novation) to develop a concept. The

contractor would be responsible for that designing team even though the employer carried some

responsibility too (Miller et al., 2009). It was worth noting that novation was viewed as

incompatible with NEC 3 contract (Ramus et al., 2006).

2.5.3 Management Contracting

This procurement route involved an employer engaging a managing contractor to manage the

works (Miller et al., 2009). An employer would employ other consultants for design and Bill of

Quantities preparations (ibid). The managing contractor would then appoint subcontractors who

would do the construction work (Miller et al., 2009). The sub-contractors would however enter

into separate contracts with the employer to commit that they would deliver the work (Ramus et

al., 2006).

12

The managing contractor was responsible for the works to ensure that set objectives were

achieved. The payment of a managing contractor was based on a prime cost of the works plus a

fee of the services which might be fixed or a percentage of a prime cost sum (Ramus et al.,

2006).

2.5.4 Target cost

Target cost contracting could be either with bill of quantities or with only schedule of activities

(Gould, 2007). The principle behind was that the employer and contractor would share the gains

if the project did not reach the target cost or share the pain if there was an overspend (Rashid et

al. 2006). That type of procurement encouraged great cost controlling and was one of the main

options in NEC 3 contract (Gould, 2007).

2.6 Criteria used in selecting standard forms of contracts

The criterion that could be used to select contracts in the construction industry had a number of

factors. The following passages outlined different factors that must be considered:

2.6.1 Procurement route

A procurement route was chosen first before a standard form of contract (Love et al., 1998). A

standard form of contract should only be determined by the procurement route and other

pertinent issues to a project (Love et al., 1998). In principle, certain contracts were only best

suitable for certain procurement routes. For instance, the JCT SBC could only be used under

traditional system of procurement and if one considered design and build, then JCT Design and

build would be more appropriate (Love et al., 1998).

2.6.2 Types of works required and sector

The nature of works should be established in terms of how big or small the works were, the time

period of the works, whether there were civil or building works, whether there were specialist

works or not. All these factors would help in choosing the type of a contract. For instance, the

13

civil works that would be less than $500,000 and taking less than a year could best be

implemented using NEC 3 Short Form contract (Dickson, 2013).

2.6.3 Size, value and complexity of the project

It was worth noting that a project could be huge in terms of size and cost, but relatively easy to

construct (Rowlinson, 2011). There were also cases where a project could be small in size but

had complex designs (ibid). A single factor might not automatically determine the type of

contract (Rowlinson, 2011). NEC3 could best be implemented on relatively large projects, but

has formulated others such as Short contract to cater for small size projects (Dickson, 2013).

2.6.4 The employer’s knowledge about contracts

With most government projects, there were certain contracts that would be commonly used on

their projects (Chan, 2006). In the UK for example, NEC 3 contract was mostly used on public

sector construction projects (Ramus et al., 2006). So sometimes the public sector endorsed

certain type of contracts and that was what would be implemented on every project. The

contractors could resort to hike their rates if there were exposed to unfamiliar contracts to

cushion themselves from unknown risks something that could also discourage many employers

from trying out other forms of contracts. (Ramus et al., 2006).

2.6.5 Risk allocation

The selection of procurement routes hinges on the apportionment of risk (Tate, 2003). For

instance design and build generally apportioned risk of the designs to the contractor (Mathonsi

and Thwala, 2011). However different types of standard forms of contracts could apportion the

extent of responsibility to the contractor and how much the employer could have. Contracts had

traditionally favoured the employer and were adversarial in nature to the contractor who usually

should take the most risk (Dickson, 2013). NEC 3 however had tried to address that issue by

having all the parties to cooperate and acting in good faith (Chan, 2006).

14

2.6.6 Basis of contract sum and payment

The contract type whether it was a lump sum contract with or without quantities or whether it

was a‘re-measurable’ contract also mattered in selection of a contract (Tate, 2003). Lump sum

contract usually favoured the employer and the contractor would have to bear the risk and

usually there would not be room for fluctuations (Ramus et al., 2006). Re-measurement on the

other hand used bill of ‘approximate quantities’ which would mean quantities were subject to re-

measurement when the work had been done; presenting uncertainties to the employer on the total

contract sum (Ramus et al., 2006).

Target cost option in the NEC 3 would benefit all the parties because there were incentives to all

parties (contractor and consultants) for cost savings and also faced penalties for cost overruns

(Kings, 2005).

2.6.7 Sub-contracting

Sub-contractors would either be nominated or domestic (Ramus et al., 2006). Domestic sub-

contractors were chosen by the contractor and had the full liability for their actions, while

nominated sub-contractor was selected by the employer even though they entered into a contract

with the main contractor (Ramus et al., 2006). NEC 3 did not encourage having nominated sub-

contractor/suppliers due to the liability they presented to the client (Gould, 2007).

2.7 Discussion on the studies and recommendations of NEC 3

Arguments had been put forward by Latham (1994) that the use of the same traditional contracts

had resulted in the same kind of disputes being witnessed for decades. Chan (2006) added that

there was need for the standard contracts to move away from a lot of uncertainties and

ambiguous terms to clearer, understandable and fair clauses that would be fair to all the parties.

15

2.7.1 A study by Chan in 2006

According to Chan (2006), construction industry in Malaysia had been using traditional JCT 80

Contracts over the years that many were familiar with and it was difficult to introduce unfamiliar

contracts. The results could be that contractors would increase their charges to guard against

unforeseen risks. The research carried by Chan (2006) out on the adoption of NEC 3 contract

proved that Malaysian construction industry was not ready for it. The cited reasons were that the

industry was not ready to replace the role of an Architect with a Project Manager (Chan, 2006).

Another conclusion made was that variation orders are best attended to as re-measurable when

works had been done rather than prior agreement. That approach however made the costs

uncertain as well and difficult to manage the contract sum. The NEC 3 contract was however

applauded in Malaysia for its simplicity in language and fairness among other benefits (Chan,

2006). The study seemed to highlight so much on the general philosophy of the NEC 3 contract

and not specifically on cost controls.

2.7.2 A study by Rashdi in 2010

A study carried out in the Sultanate of Oman by Rashdi (2010) revealed that their traditional

contracts had become dated and were no longer very suitable to more complex construction of

projects. It is important to note that Rashdi (2010) acknowledged that NEC 3 had brought with

some contemporary approaches to the needs of the contracting parties. The conclusion is

however general and does not give in-depth explanation about these contemporary approaches.

2.7.3 A study by Mukamba in 2007

In Zimbabwe, a study was done by Mukamba (2007) on the need for indigenous contractors to

implement project management practices in their projects. He stated that due to the need to get

most of the government projects, most contractors were still familiar with the traditional

contracts such as ZGCC4 and CIFOZ. He however recommended the adoption of new forms of

contracts such as NEC 3 which had better project management principles (Mukamba, 2007). The

study did not however, acknowledged any cost controls that the NEC 3 contract might offer.

16

2.7.4 A study by Dickson in 2013

A study was also done in Hongkong by Dickson (2013) which sought to analyse if NEC 3

contract would bring any improvement to their construction industry. In his conclusion, he laid

out that it was very flexible, encouraged corporation amongst players and improved management

of projects. He however acknowledged that its implementation in Hongkong was not an easy

task but needed awareness and change of cultures that the industry was used to. It was also stated

that there was need for an initial investment in training resources on unfamiliar procurement

routes such as target cost which was one of the options in the NEC 3 contract (Dickson, 2013).

The study did not also dwell much on the cost control measures that NEC 3 contract offered.

2.8 Legal framework of Procurement in Zimbabwe on construction

2.8.1 The Constitution of Zimbabwe (2013)

The constitution highlights the objectives of public procurement and what the public

procurement system should achieve (Tsabora, 2014). Section 9 states that the government should

‘adopt and implement policies and legislation to develop efficiency, competence, accountability,

transparency, personal integrity and financial probity’ (The Zimbabwe Constitution, 2013:

Section 9). It provides a minimum guide as a regulatory framework to procurement (Tsabora,

2014).

2.8.2 Procurement Act (Chapter 22:14)

It was passed in 1999, and regulates local and central government procurement (Tsabora, 2014).

Procurement act defines the various procurement routes that are available in the construction

industry. It however states categorically the procedure for all public services and goods which is

a traditional procurement procedure (Mukamba, 2007).

2.8.3 Jurisdiction of NEC 3 contract

NEC 3 has an option that makes it have jurisdiction for other countries to implement it by

amending certain clauses to suit a particular environments internationally. It however has its own

17

peculiar core clauses (Chan, 2006). NEC 3 has been in use in countries such as UK, New

Zealand and South Africa (Redmond, 2009).

In view of the above, it was apparent that a legal framework that governed the public sector on

procurement existed but the private sector was not covered by that Procurement Act. However,

all the construction activities should be done within the confines of the constitution which was

the supreme law of the land.

2.9 Critical analysis of NEC 3 contract a cost control measure

2.9.1 Programme of Works

According to Forward (2002), it was important to note that both contracts had a provision for a

programme of works under Clause 31.2. In the NEC 3 contract, a programme of works was a

critical component of the contract (Doig, 2014). It was incorporated into the conditions of

contract, and failure by the contractor to update would result in sanctions on their payments

(Doig, 2014). The programme of works was used to monitor progress, on variations, on early

warnings and when ascertaining compensation events which also considered that the affected

works should be on the critical path for them to be awarded an extension of time (Gould,

2007).Time management was directly proportional to cost management and if it was not well

managed would result in a negative effect on cost (Doig, 2014).The traditional contracts

requested for a programme of works at the beginning of a project and further revision when

extension of time had been granted (Chan, 2006).

2.9.2 Provisional Sums

The Provisional Sums were permissible in the traditional contracts when there was not enough

detail on the designs. According to Doig (2014), the NEC 3 had no provision for Provisional

Sums, which meant the contract required almost complete designs. That might be difficult to

abide by in some cases where time was limited the Works Information would incorporate such

18

an inclusion of a Provisional Sum (Doig, 2014). The feature seemed as though it delayed the

project from commencing, but could help a lot in having certainties on costs.

2.9.3 Nominated sub-contractors and suppliers

The NEC 3 contract did not expressly state the provision for nominated subbies or suppliers

(Doig, 2014). According to Heaphy (2010), Nominated sub-contractors and suppliers constitute

the PC Sums which were provisional and the only true costs were known when the Nominated

subbie or supplier had been selected. Inasmuch as the result could either be an addition or

deduction to the contract sum, the uncertainty of costs was still there. Traditional contracts on the

other hand had the provision of PC Sums, even though some clients had been amending the

contracts not to include such (Heaphy, 2010).

2.9.4 Compensation Events

According to Chan (2006), the NEC 3 contract had compensation events (CEs) under Clause 60.

These were part of the conditions of contracts and made part of the core clauses. The CEs were

events which might result in additional money to the contractor (Gould, 2007). However, the

claim was conditioned upon the pro-activeness of the contractor in raising an early warning upon

them being aware of the event within 8 weeks. Failure on the part of the contractor to give that

warning might result in them not getting compensation in form of money and/or time, unless that

was the mandate of the Project Manager (Gould, 2007). Situations that gave rise to CE included

variations, inclement weather, late instructions, unsafe working conditions and so on. The

approach had to be pro-active (Doig, 2014).Interestingly, that clause is treated differently in

other parts of the world such as the Middle East where the Islamic law is in operation, time

barring is not recognised on compensation claims (Hasan, 2014).

In the traditional contracts the claims for loss and expense did not usually had a time-bar and

could be claimed after the event had occurred without any prior need for early warning and

mitigating measures (Chan, 2006).

19

2.9.5 Early warning – Clause 16

NEC 3 contract used early warning system to identify and attend to risks beforehand, and it was

the responsibility of both project manager and contractor. NEC 3 contract encouraged a pro-

active approach which helped achieve better risk management (Kings, 2005).

2.9.6 Incentives for financial savings

One of the main options of NEC 3 contract was target cost. It was a pricing and payment system

that had mutual gain/ pain share of financial savings or losses at the completion of a project

(Knowles, 2011).It was an approach that motivated parties in a contract to work within a budget

to save costs so that they could share the savings. If the project exceeded the budget, then both

parties should pay for the additional amount (Knowles, 2011).

2.9.7 Core clauses

The NEC 3 contract had the 9 core clauses that helped maintain its philosophy of mutual trust

and cooperation between parties (Gould, 2007). Compensation events, early warning,

programme of works were all found in the main clauses hence Latham (1994) mooted that the

core clauses should not be amended to uphold the philosophy of the NEC 3 contract.

2.9.8 Project Manager

The NEC 3 contract had a project manager representing the employer and that helped to manage

the project better (Gould, 2007). Having an Architect supervising the work that they had

designed might create a conflict of interest and value engineering could also be compromised

(Chan, 2006). Most traditional contracts had a provision for an Architect/ Engineer to design and

supervise their own work unless there was an amendment.

2.9.9 Health and Safety

NEC 3 contract promoted good health and safety principles and these were part of its conditions

of contract. According to Gould (2007), if a contractor violated those principles, they could risk

20

termination of contract. Maintaining health and safety in check was viewed by many as wasting

money, but in actual fact it is a cost saving mechanism (Chan, 2006).

2.9.10 Defined and Disallowed costs

If one used a cost reimbursable approach as a pricing and payment option, there were ways to

manage costs (Gould, 2007). For instance, if there had been excess material purchase after

allowing for waste, that surplus was not paid for. It was considered a disallowed cost because it

was an unnecessary cost incurred by the contractor (Doig, 2014). The cost reimbursable option

generally favoured the contractor and put a higher risk on the employer who might not consider

it (Gould, 2007).

Defined costs generally were costs recoverable by the sub-contractor for the works and including

plant hire, equipment used for the works minus the disallowed costs that arose from contractor’s

inefficiencies (Heaphy, 2010).Traditional contracts were mostly administered by a traditional/

separate method which saw the design preparation by the Architect before the contractor could

execute it.

2.9.11 Variation Orders

An early warning system approach was applied and a budget was established first before the

variation order could be implemented (Chan, 2006). The traditional contracts did not expressly

require that pro-activeness and usually the costs were established after work had been completed.

However, if there were amendments that stipulated a proactive procedure, then that cost

uncertainty could be avoided. Provisional sums for instance should be agreed by the employer

before implementation (Gould, 2007).

2.9.12 Delay Damages

In NEC 3 contract, delay damages were optional and were in the secondary options and should

be part of the contract data if there were included (Heaphy, 2010). However, the NEC 3 had pro-

21

active approach of key dates and sanctions for not submitting or updating the programme of

works (Gould, 2007). In the traditional contracts, there were delay damages known as

Liquidated and Ascertained damages if it was contractor’s fault for late completion and it helped

generally to manage the contractor to work within the programme (Ramus et al., 2006).

2.10 Extent of use of NEC 3 Contract in Zimbabwe

According to Redmond (2009), the NEC contracts publishing house had stated the use of NEC 3

contracts in 16 countries in the world and one of them was Zimbabwe. He however mentioned

that significant use was in South Africa where it was used at a greater scale. The NEC 3

contracts use in Zimbabwe was also confirmed in a Zimbabwean newspaper article of Sunday

Mail 15 March, 2015 at Unki Mine.

2.11 Conclusion

This chapter helped to understand about the overview of the NEC 3 contract, its cost control

measures, what other authors have written and the knowledge gap that exists. It also provided the

institutional framework in Zimbabwe and the judiciary of the NEC 3 contract.

22

CHAPTER 3

Research Methodology

3.0 Research methodology / strategy

This chapter provided the techniques that were used to collect the data. The research used mainly

the qualitative approach due to the underlying information that the researcher sought to obtain of

the underlying attitudes and trends from the respondents through interview guide

(Amaratunga et al, 2001). Quantitative approach was also used to complement the qualitative

approach.

3.1 Description of study area

The study was carried out in Zimbabwe in 3 places namely Harare, Bulawayo and Shurugwi,

Unki Mine. Those areas were selected because of their convenience to access and due to the fact

that NEC 3 contract had been used on those places.

3.2 Target population

The target population for this research was the construction players which included the

consultants, employers and contractors in Zimbabwe.

3.2.1 Sampling Frame

A sample frame was defined as a complete list of all the cases in the population from which

sample was drawn from (Harris and Brown, 2010). The researcher would gather information

from clients, contractors and consultants working in the industry. Contractors registered with

either Zimbabwe Building Contractors Association (ZBCA) or Construction Industry Federation

of Zimbabwe (CIFOZ) categories A to C would be considered for participation in this research.

In addition to that registered consultants from Institute of Architects Zimbabwe (IAZ),

Zimbabwe Institute of Engineers (ZIE) and Zimbabwe Institute of Quantity Surveyors (ZIQS)

23

and Private Sector Clients such as Mines, NGOs and other privately owned entities would also

be considered for this study.

3.3 Sampling Techniques

A non-probabilistic approach of purposive sampling was used on the 3 strata to target specific

group that had utilized NEC 3 contract on their projects. Snow-ball sampling technique was a

subset of purposive sampling was applied since the use of NEC 3 contract was still new in

Zimbabwe and referrals would help a lot to collect data.

3.4 Data Collection techniques

3.4.1 Primary Data

Primary data was gathered using two sources of collecting data, which were interviews and

questionnaires. Questionnaires were used to maximize the proportion of respondents answering

questionnaires and to obtain accurate relevant information. They were distributed by means

emails and physically. The only problem associated with the approach was that respondent might

not be able to obtain clarity on the questions in case there was need for some information outside

the structured questions may not be obtained. Questionnaires were also a stated as a good source

of obtaining information by Harris and Brown (2010) as one might express themselves without

feeling any obligation to impress.

The questionnaire was divided into three categories namely; General Information of respondents,

extend of use of different procurement routes and standard forms of contracts and analysis of the

NEC 3 contract and its suitability as a cost control measure. Purposive sampling was applied

using snowballing approach and it was assisted in acquiring information from those construction

players who have used NEC 3 contract on their projects. According to Creswell (2007) a

representative sample frame should have a minimum of 10% of the total population. For this

research a sample size of 50% was used for each category.

24

A certain number of participants were drawn from the target population of contractors, clients

and consultants to make up a sample size. The composition of the sample size is as shown in

Table 3.4.2

Table 3.4.2: Target Population of Consultants, Clients and Contractors

Respondents Targeted respondents

Quantity Surveyors 12

Engineers 12

Architects 12

Clients 12

Contractors/ Contracts Mgr. 16

Total 64

A representative sample was drawn from the population as shown in Table 3.4.3

Table 3.4.3: Classification of the Sample

Construction

Professionals

Number of Construction

Professionals

50% sample size

Quantity Surveying 12 6

Architects 12 6

Engineers 12 6

Contractors/ Contracts

Mgr.

16 8

Clients 12 6

Total 32

Interviews were be done using a carefully prepared structured interview guide to collect data face

to face, by telephone and through Skype. Clarity on certain questions and any other information

required was obtained through this approach. However, with interviews, appointments were

necessary due to busy schedules.

25

Table 3.4.4: Target Population of Consultants, Clients and Contractors on the interview

guide

Respondents Targeted respondents

Quantity Surveyors 10

Engineers 10

Architects 10

Clients 10

Contractors/Contracts Mgr. 10

Total 50

A representative sample was drawn from the population as shown in Table 3.4.5

Table 3.4.5: Classification of the sample

Construction

Professionals

Number of Construction

Professionals

50% sample size

Quantity Surveying 10 5

Architects 10 5

Engineers 10 5

Contractors/Contracts Mgr. 10 5

Clients 10 5

Total 50 25

3.5 Secondary Data

Secondary Data was gathered from the literature that was published regarding the topic.

Secondary data helped in collecting statistics of the past trend on construction projects and this

was important in identifying the knowledge gap of the study.

26

3.6 Results presentation

In the results section, the researcher would use the visual aid such as pie charts and graphs to

present data (Baron, 2012). The results or findings would be aided by short objective

interpretations to give meaning to the visual aids. The results would be in direct response to the

research questions of the study.

3.7 Data analysis

To analyse data from the questionnaires, a Likert scale was used measure the attitudes and

perspectives because of the qualitative nature of the study into quantitative data as recommended

by Boon (2012). According to Kendall (2008), the questionnaire analysis should help bring out

the trends/patterns amongst respondents. The main objective of the study was to investigate the

suitability of the cost control measures in the NEC 3 contract on the private sector construction

industry in Zimbabwe. The analysis should bring out the perspective of the construction players

on the cost control measures.

To complement the questionnaires Kendall (2008) stated that the interviews would give in-depth

information about the respondents’ opinions. A qualitative research could be interpreted by

coding of selected common phrases or outstanding information from the study, even though

sometimes the process could lack objectivity (Bryman, 2008). The process should include

categorizing data based on codes and interpreting the significance of those categories in

answering the research questions (ibid).

3.6 Ethical Considerations

The research considered ethical norms before and during field research in order to create rapport

between the researcher and the respondents. This was important to the respondent’s interest in

sharing data with the researcher. There were no incentives or gifts that were offered when

obtaining information. Furthermore, to counteract the issue of plagiarism, various sources were

acknowledged. The information gathered was strictly confidential.

27

3.7 Validity of the data

As a way of establishing the truthfulness of the data collected, there would be need to use more

than one technique of data collection to increase objectivity in the results (Golafshani, 2003).

Since the research was mainly qualitative, multiple ways of obtaining the truth such as

questionnaires, interviews and records from literature would be used to reduce subjectivity.

According to Noble and Smith (2015), there were strategies to help improve the credibility of the

qualitative results collected as follows:

Acknowledging the level of bias on the researcher that could have manipulated the results

Acknowledging the limitations of the research

Keeping of records and showing of calculations of all the analysis for easy reference.

Acknowledging authors for their sources of information

Triangulation that is making use of multiple ways to obtain and analyse the results.

28

CHAPTER 4

Results, Analysis and Discussions

4.0 Introduction

The results and analysis of the study would be presented and discussed in this chapter. The

chapter was critical because it would provide the findings of the study and their meaning (Baron,

2012).

The research was qualitative in nature on most parts because the research sought to find answers

about the attitudes and coming up with conclusion that could reveal whether the NEC 3 contract

was a cost control measure that could be suitable for construction projects in Zimbabwe. It was a

research where not all the ideas were available but the researcher was also looking for ideas,

concepts and general expert advice from people in the field.

A total of 32 questionnaires were administered on consulting companies, clients and contractors

and responses were 23, meaning the response rate was 72%. The respondents were from

construction professionals in the construction industry. They were selected using both random

sampling and purposive sampling.

The questionnaire was mostly structured. It was a quick and easy way of collecting data from

respondents; however it had its limitations as it confined respondents to choosing responses from

given answers rather than freely expressing themselves.

4.1 Results from Section 1 of the questionnaire

Section 1 of the questionnaire was a respondent’s profile and the researcher was seeking to

establish the experience of the respondents as well as their field. Below is a presentation of the

results obtained:

29

Fig 4.1.1: Respondents Experience

n=23

From the presentation in Fig 4.1.1, the largest number of respondents was in the experience

range of 6-10 years, while the other ranges had relatively lower numbers. Most respondents had

acceptable experience level which makes the results of the study more credible.

The distribution of professionals who responded to the questionnaire was as shown in Fig 2

Fig 4.1.2 – Professionals Respondents

0

2

4

6

8

10

12

0-5yrs 6-10yrs 10-20yrs Over 20yrs

No

. of

resp

on

de

nts

Years of experience

0

1

2

3

4

5

6

7

Architect QuantitySurveyor

Engineer-Civil Client expert ContractsManager

No

. of

pro

fess

ion

als

Professionals

30

The distribution of professional respondents had the Quantity Surveyors with the highest number

of respondents and the Architects with the lowest. However the distribution was fairly

represented for the data that the research required.

4.2 Results from Section 2 of questionnaire

Section 2 of the questionnaire was on the extent of use procurement routes and standard forms of

contracts in Zimbabwe. The question was seeking to answer the research question on the extend

of the use of NEC 3 contract and to do so, one needs to understand the types of procurement

routes in use as shown in Fig 4.2.1.

Fig 4.2.1: Procurement methods

The results showed that the traditional route was extensively in use in Zimbabwe with 62%,

Design and Build had 19%, while Management contracting had 13% and collaborative and

Target Cost each had 3%.

Traditional62%

Design and Build19%

Management Contracting

13%

Collaborative3%

Target Cost3%

31

Fig 4.2.2 shows results indicated the extent of use of NEC 3 contract in Zimbabwe by having a

comparison with other standard forms of contracts:

Fig 4.2.2 Extent of use of NEC 3 contract in Zimbabwe

The respondents indicated that the FIDIC contracts were mostly used in the private sector with

26%, followed by ZGCC4 with 19% and CECCZ with 18%, followed by CIFOZ and JCT

contracts with 13% each and lastly NEC contracts with 11%. It is worth noting that JCT

contracts were not in use in Zimbabwe, and that perhaps indicated the lack of knowledge in the

area by some respondents. The results clearly showed that the use of NEC contracts was still

very low and mainly traditional contracts dominated the private sector.

4.3 Results from Section 3 of the questionnaire

Section 3 sought to answer the main research question on the investigation of the suitability of

the cost control measures in the NEC 3 contract on the private sector construction industry in

Zimbabwe.

NEC contracts

11%

FIDIC contracts26%

JCT contracts

13%

ZGCC419%

CECCZ18%

CIFOZ13%

32

Fig 4.3.1 shows the analysis of ‘Time-barring’ on Compensation Events clause as follows:

Fig 4.3.1 Time barring on CEs

According to the results obtained, 9 of the respondents did not know the time barring clause on

compensation events, while 5 disagreed, 5 agreed and 4 strongly agreed that it was a cost control

feature.

0

1

2

3

4

5

6

7

8

9

10

Stronglydisagree

Disagree Don’t Know Agree Strongly Agree

No

. of

resp

on

de

nts

33

Fig 4.3.2 has the results on the analysis of a programme of works being part of the contract:

Fig 4.3.2 Programme of Works to be part of contract

According to the responses, the idea of having the programme of works in the contract as a cost

control measure had highest respondents about who strongly agreed and shared that number with

those who agreed, while 5 of them did not know and 4 disagreed.

0

1

2

3

4

5

6

7

8

Stronglydisagree

Disagree Don’t Know Agree Strongly Agree

No

. of

Re

spo

nd

en

ts

34

Fig 4.3.3 showed results on people’s perspective on the absence of provisional sums as a cost

control measure.

Fig 4.3.3 Removal of Provisional Sums

The cost control measure of removing the provisional sums in the contract had the 9 respondents

disagreed, followed by 8 who did not know, 3 respondents strongly agreed, 2 agreed while 1

respondent strongly disagreed.

0

1

2

3

4

5

6

7

8

9

10

Stronglydisagree

Disagree Don’t Know Agree Strongly Agree

No

. of

Re

spo

nd

en

ts

35

Fig 4.3.4 shows results on respondent’s view about the Gain/Pain share of financial gain/loss in

Target cost procurement route found in the contract’s main clauses of the as an option

Fig 4.3.4 Gain/ Pain share of financial savings/losses

The responses from the questionnaire indicated that 10 respondents agreed, 5 strongly agreed,

while 5 did not know and three disagreed to the effectiveness of the cost control feature.

Fig 4.3.5 The Project Manager for supervision

0

2

4

6

8

10

12

Stronglydisagree

Disagree Don’t Know Agree StronglyAgree

No

of

Re

spo

nd

en

ts

0

1

2

3

4

5

6

7

StronglyDisagree

Disagree Don't know Agree Strongly Agree

No

. of

Re

spo

nd

en

ts

36

The questionnaire responses indicated that the idea of having a project manager for supervision

had highest responses under those who agreed (6). That was also equal to the number of those

who did who did not know, while 5 strongly agreed, 4 respondents disagreed and 2 strongly

disagreed to its effectiveness as a cost control measure.

Fig 4.3.6 Early warning system on risk management

The questionnaire results obtained showed that the early warning system had the 9 respondents

strongly agreeing, 7 agreeing, while 4 did not know and 4 disagreed on its effectiveness as a cost

control measure.

0

1

2

3

4

5

6

7

8

9

Stronglydisagree

Disagree Don’t Know Agree Strongly Agree

No

. of

Re

spo

nd

en

ts

37

4.4 Analysis of the results from Questionnaire

A comparison on respondents’ perspectives about the suitability of each NEC 3 cost control

measure on the Zimbabwean private sector construction industry:

Table 4.4.1 Summary of respondents’ perspective on the NEC 3 contract

Cost Control

Strongly

disagree Disagree

Don't

know Agree

Strongly

agree

Time bar on C.E 0 5 9 5 4

Prog. of works on contract 0 4 5 7 7

No Provisional Sums 1 9 8 2 3

Gain/Pain share 0 3 5 10 5

P.M for supervision 2 4 6 6 5

Early warning 0 4 4 7 8

From the Table 4.4.1, the numbers represent the number of respondents who answered a

particular cost control.

To draw comparisons and contracts, the researcher assigned values to the Likert scale as follows:

Strongly disagree 5 points

Disagree 4 points

Don't know 3 points

Agree 2 points

Strongly agree 1 points

38

Table 4.4.2 shows the average responses deduced for each cost control measure as follows:

Table 4.4.2 Average response for cost control measure

Time bar on C.E Strongly agree 5 x4 =20

Agree 4 x5 =20

Don't know 3 x9 =27

Disagree 2 x5 =10

Strongly agree 1 x0 =0

Total points 77

The same approach shown in Table 4.4.2 was applied to all cost control measures as shown in the Table

4.4.3

Table 4.4.3: Average responses for all cost controls

Cost Control Average

Time bar on C.E 3.3

Prog. of works on contract 3.74

No Provisional Sums 2.86

Gain/Pain share 3.74

P.M for supervision 3.3

Early warning 3.83

The data in Table 4.4.3 showed that Early Warning System was regarded by respondents as the most

suitable cost control measure with an average of 3.83. It was followed by Program of works in the

contract and the Gain /Pain share on savings/ losses both with an average of 3.74. On the third position

was Time barring of Compensation Events sharing the same position with having the Project Manager for

supervision with an average of 3.3. The least averaged cost control measure of 2.86 allocated to the

removal of Provisional Sums from the contract. The degree of differences was not much but significant

enough to show a pattern on the respondent’s perspective of the cost control measures in the NEC 3

contract.

39

4.5 Results from the Interview guide

The interviews were mostly carried on Skype with a few on one on one due to limited resources

to travel from one point to another. The sample was relatively smaller than for questionnaires as

respondents needed appointments for interviews. Out of the 25 appointments on interviews, a

total of 15 were able to avail themselves for interviews. That meant a total of 60% response to

the interview guide. The guide had a section of respondents’ profile that included their years of

experience and professions.

The distribution of the respondents who answered the interview guide was as shown in Fig 4.5.1:

Fig 4.5.1 – Years of experience for interview respondents

n=15

The interview respondents were mostly in the range of 6-10years of years of experience. It is a

fairly reliable range of experience to obtain most of the answers from.

0

1

2

3

4

5

6

7

8

1-5yrs 6-10yrs 11-20yrs Over 20yrs

No

. of

resp

on

de

nts

Range of Years

Years of experience

40

Fig 4.5.2– Professionals Interviewed

n=15

The interviews had the Civil Engineers with the highest number of respondents (5) and the

Contracts Manager had the lowest figure. It is also a fair presentation by different professionals

on the study.

Section B of the interview guide focused on the analysis of the NEC 3 as a cost control measure.

The advantage of the interviews was that questions could be clarified and obtaining more

information from the respondents.

4.6 Method of analysis on the interviews

The data collected was mainly qualitative and for a method of analysis, the researcher used an

open minded approach with no bias of pre-conceived ideas. The coding of the responses was

derived from the following observations that were noted as recommended by Kent (2012):

statements that were repeated by many respondents

statements that were conceptual

statements were also similar to other conclusions made by other authors

0

1

2

3

4

5

6

Architect QuantitySurveyor

Engineer-Civil Client expert ContractsManager

No

. of

pro

fess

ion

als

Professionals

Professionals Interviewed

41

4.6.1 Categories that were derived from the above codes

There were two categories that were derived from the responses that were collected and these

were classified as ‘economic environment’ and ‘familiarity’ as shown in Table 4.6.1.1. The

economic environment was referred to by many in their responses, while issues of familiarity

were also coming out quite often from many respondents.

Table: 4.6.1.1 – Categories/indexing of results from interviews

Familiarity Category Time barring in Compensation Events

Early warning system

Removal of Provisional Sums

Z-Clauses

Economic Category Defined and disallowed costs

Programme of works as part of the contract

The Project Manager for Supervision

Collaboration / Partnering

Gain / Pain sharing of savings/losses

4.6.2 Analysis from the ‘familiarity’ category

4.6.2.1‘Time-barring’on compensation events clause

Many respondents stated that there were not familiar with ‘time barring’ concept. However, they

said it was a good approach to claims even though it would cause a lot of disputes with

contractor’s who were not used to such.

4.6.2.2 Early warning system on risk management

From the interviews carried, the view of the respondents was that early warning system was a

good mitigating measure to cost overruns even though it was a new concept and needed more

education.

4.6.2.3 No provisional sums

The removal of provisional sums in the NEC 3 contract was not viewed as anything that helped

to control costs. The general understanding that many respondents stated was that provisional

sums helped to provide a better estimate of a project and would increase or reduce the final cost

when scope was fully defined.

42

4.6.2.4 Z-clauses

The option of Z-clauses was considered as a good option that provided room for flexibility to

amend the contract with more familiar clauses.

4.6.3 Analysis from the ‘economic environment’ category

4.6.3.1 Defined and disallowed costs

Most respondents welcomed the idea stating that the even though cost reimbursable contracts

were not very ideal on the clients’ side due to high risk, having defined and disallowed costs was

necessary to manage what was due to the contractor and avoid unnecessary payments. They

stated the economic environment needed such diligence.

4.6.3.2 Programme of works to be part of the contract

The explanation from the interviews indicated that respondents were generally for the idea of

having the programme of works as part of the contract as a way of improving time and cost

management.

4.6.3.3 The Project Manager for supervision

The interviews on the subject matter revealed that many respondents did not appreciate much the

value of having a project manager. Some viewed it as an extra cost that could be avoided by the

usual services of an architect/ engineer who designed and supervise works.

4.6.3.4 Collaboration/ Partnering

Respondents appreciated the concept of ‘partnering’ as a way of removing adversity, but stated

that it was not very feasible in an environment where many disputes arose from late or non-

payments from the clients and contractor’s defaulting due to the difficult economic environment.

4.6.3.5 Gain/Pain share financial saving/loss

From the interviews carried out, the concept of gain/ pain share of financial saving/ losses was

foreign to respondents. Respondents needed further explanation and some were skeptical about

its feasibility in Zimbabwe where in most cases projects would have cost overruns due to late

payments and a lot of variations due to design changes.

43

4.7 Discussions

The main purpose of the research was to investigate the NEC 3 contract as a cost control

measure and how suitable it was to the construction industry in Zimbabwe. The following

passages discuss those measures as well the responses that came out of the questionnaires and

interviews.

4.7.1 Time barring on compensation events clause

The compensation event clause 6 called for a pro-active approach on the part of the contractor to

give notice within 8 weeks of becoming aware of risk that would result in additional cost before

their for their claim could be entertained. As shown in the results that many respondents were not

really in support of this stance stating that it might be a source of disputes. Many stated that even

without a notice given, the contractor should be entitled as was the case with other contracts. It

was probably because of the absence of such an approach in most traditional contracts that

Zimbabwe used. However, in FIDIC (red book) 1999 for example, that approach was found and

had even a lesser period of 28days to give a notice on a loss and expense claim. From a due

diligence point of view, being pro-active in giving a notice to a risk could help to mitigating risks

and perhaps realizing a cost saving. Giving a notice could also assist to the reconciling the period

when the additional costs started and supporting documents incurred for the processing of

payments. Given that the concept was relatively new to the construction players, making

everyone aware of such clauses would assist for the good of the project.

4.7.2 The role of Project Manager

The respondents indicated less enthusiasm about having a project manager on a project and they

mostly recommended that it was appropriate on large projects. Some viewed as an additional and

recommended the designer to manage. However others welcomed the idea as refreshing since the

person would be having any conflict of interest. The traditional contracts such as the ZGCC4

recognised the services of the Architect for designing and supervision. It is important to note that

the notion that Project Manager meant additional cost to the project might not be true, because

even when the Architect designs and supervises their statutory charges are generally 4.5% on

design and 1.5% on supervision of the contract sum. Project Managers charges were about 1% of

the contract sum and that might make them even cheaper. It might actually benefit the client to

have a more neutral person who has no conflict of interests to represent them on the supervision

of works and may help in objective value engineering. A study done in Malaysia by Chan (2006)

on the NEC 3 also indicated that the Architects in that country were not ready to ‘relinquish’

their supervision services to a Project Manager.

44

4.7.3 Removal of Provisional Sums

Some respondents felt the removal of provisional sums was not necessary as having them was

just a measure that helped to estimate works when they were not fully designed. Having no

provisional sums in the NEC 3 contract was done specifically reduce the risk of costs

uncertainties (Doig, 2014). The absence of the provisional sums in the NEC 3 contract would

mean having complete designs before a project commenced. The risk of consultants treating a

provisional sum as a ‘contingency’ that could easily be exploited was not really a significant

issue to many, yet in reality that could cause escalations costs on many projects. However, the

fact that designs should be completed might not always be practical due to limited time before a

project commenced and having provisional sums might be inevitable. Furthermore the issue that

traditional procurement route with a single stage tendering procedure was more popular, the

contractor involvement at design stage was absent and that might result in having provisional

sums to the client.

4.7.4 Early Warning System

This feature was embraced by many respondents as a way of helping to attend to risks and

mitigate possible losses. They stated that it was one exercise that should take place to manage

risk and complementary to compensation events. Early warning should come from both the

Project Manager and the contractor and that made the approach less punitive and everyone

responsible (Hasan, 2014).

4.7.5 Gain/Pain share of financial savings/losses on Target Cost

The respondents indicated that they were not really familiar with this procurement route and

would need education on it. It was noted however that it could be a good cost saving tool. A

study by Dickson (2013) also stated that this procurement route needed initial injection of costs

on training resources to contractors tendering using target cost. The concept of incentivizing both

parties for savings and bearing costs on losses was a noble cost saving idea that could help with

effective cost controls.

4.7.6 Z-Clauses

The Z-Clauses in the NEC 3 contract allowed for amendments to the contract. According to a

study by Chan (2006), that was considered as a cause for concern the philosophies of NEC 3

contract which was generally considered a departure from the traditional contracts. The

respondents however noted that it gave room for flexibility to different countries with peculiar

environments. Care cited that care should therefore be necessary on amendments so that the

amended contracts maintained cost control features as stated in the NEC 3 contract.

45

4.7.7 Defined and disallowed costs on Cost Reimbursable

This feature of controlling costs under cost reimbursable procurement route was considered by

respondents as a noble way to pay for actual costs and to ‘disallow’ costs associated with

contractor’s incompetence. Again cost reimbursable procurement route was not a popular

procurement route to many and respondents stated that they would prefer approaches that they

were familiar with.

4.7.8 Partnering/ Collaboration

The NEC 3 contract was introduced partly to deal with adversity between client and contractor,

and to bring corporation and sort of partnering arrangement with mutual understanding or mutual

trust between parties (Stiedl, 1999). The respondents acknowledged its rationale in controlling

costs, but indicated that the economic environment in Zimbabwe was marred with late payments

or non-payments and disputes were rife. Others referred to problems by indigenous contractors

who were defaulting on projects and the idea of ‘partnering’ was not likely an option. The role of

Project Manager as a pro-active supervisor who took some of the responsibilities could assist in

improving the relations and in turn help on reducing claims.

46

CHAPTER 5

Conclusions and Recommendations

5.0 Introduction

The overall aim of this project was to investigate the suitability of cost control measures in the

NEC 3 contract to the construction industry of Zimbabwe. This was discussed together with

objectives in Chapter 1 and the conclusions and recommendations that this study has contributed

to the body of knowledge.

5.1 Conclusions on the objectives of the study

Objective 1: To investigate the suitability of using NEC 3 contract with the current Legal

framework on procurement of construction projects in Zimbabwe.

According to Tsabora (2014), the Constitution of Zimbabwe published in 2013 indicated that it

was not very explicit about the standard forms of contracts or procurement routes, but its Section

9 states that the government should ‘adopt and implement policies and legislation to develop

efficiency, competence, accountability, transparency, personal integrity and financial probity’. In

that regard, the Constitution was in a way encouraging for the establishment of frameworks that

promoted efficiencies in the administration of procurement even though it was in reference to the

Public Sector. It is worth noting however that the Constitution is the ‘supreme law’ and therefore

governs every activity or undertaking in a country.

The Zimbabwe Procurement Act (Chapter 22:14) provides a legal framework for public

procurement but not on the private sector. It was in the private sector that other forms of

contracts such as the NEC 3 contract were used. According to the results, it was clear though that

both public and private sectors were still dominated by traditional contracts. In conclusion, the

use of other forms of contracts in the private sector was not limited by the Procurement Act and

construction players could use other new forms.

The jurisdiction of the NEC 3 contract as indicated in the literature review went beyond UK

where it was originally drafted. The Z – clauses in the NEC 3 contract enabled for amendments

in the contract to suit particular project environments.

47

Objective 2: To evaluate the suitability of NEC 3 contract as a cost control measure on

projects in Zimbabwe.

By and large, there was significant information from the results collected that confirmed the

NEC 3 contract as a cost control measure that could be adopted by the construction industry in

Zimbabwe. However, as discussed there were some areas which required attention for the

appropriate implementation of those measures.

NEC 3 contract was commended by many respondents as a cost control measure with many

peculiar features that were in direct response to some ‘flaws’ found in traditional contracts. From

the results, many applauded having the programme of works as part of the conditions of contract

as a way of managing time and cost, and the early warning system to risks which was viewed as

a noble mechanism to managing additional cost related risks.

Many respondents stated that partnering/ collaboration approach on contracts could be a

challenge to instill between parties due to the depressed state of economy in Zimbabwe which

was characterized by delayed payments, suspensions and defaulting contractors. Some

indigenous contractors were cited as a challenge to build ‘good faith’ and trust due to their

inconsistences on delivering projects and profiteering through cutting corners.

Target costing as a procurement route and the time bar approach to compensation events were

described as refreshing ideas that could help saving costs on site and encouraging parties to be

more pro-active. Change management, extension of time claims and any other risk that could

result in additional cost, time or affect progress required every party to be pro-active in

mitigation before assessing the need for compensation. However, lack of familiarity of some

respondents with these ‘concepts’ required awareness and training to avoid disputes that could

arise if those procedures were not followed.

Most respondents did not agree to the idea removal of provisional sums from the contracts as

was the case in the NEC 3 contract. They stated that provisional sums assisted with estimation of

works that had not been defined at the time of tender and should not be seen as a risk factor.

48

They argued that the abuse of provisional sums could be avoided because it was incumbent upon

the client whether they wanted to utilise it or not depending on their budget.

Objective 3: To investigate the extend of the use of NEC 3 contract in the construction

industry in Zimbabwe

According to results obtained from the questionnaires, the NEC 3 contract was used in the

private sector and only 12% of the respondents had used it on projects. This entailed that it was

relatively new in the industry. According to the literature review, a newspaper article in the

Zimbabwean Sunday Mail of 15 March, 2016 confirmed its use at Unki Mine in Zimbabwe.

According to Redmond (2009), the use of NEC 3 contract had been registered in 16 countries

including Zimbabwe even though he stated that it was not as significant as was the case in South

Africa.

5.2 Recommendations

5.2.1 Consultants should do a better job of acquainting clients they represented on the forms of

contracts. A classic example of why education on contracts administration was needed on

contracts was more than half of the respondents indicated that the JCT contract was used

in Zimbabwe, something that was not true and probably, an indication that knowledge

was probably lacking in that area.

5.2.2 The NEC 3 contract was relatively new in Zimbabwe and naturally construction players

were a little apprehensive in their responses on adopting the cost control measures

offered by NEC 3 contract. Seminars on the awareness of NEC 3 contract by construction

stakeholders for both private and public sectors would be necessary. Government of

Zimbabwe had not used the NEC 3 contract on its projects and such seminars could be an

eye opener.

5.2.3 The bias towards traditional contracts was still there even though they were some cost

control measures in the NEC 3 contract that were commended. As a recommendation, the

construction players could introduce some of these clauses amendments to their contracts

on some of the projects and evaluate their effectiveness. In Zimbabwe where concepts

such as ‘time barring’ on claims were not common, parties should be made aware of such

clauses in the contract beforehand to avoid unnecessary disputes.

49

5.2.4 The change of mindset on subjective risk allocation to the contractor which the NEC 3

contract addressed should be emphasised across the construction industry. Clients should

also engage on projects that they could fund to avoid late or no payments, and on the

other hand a thorough scrutiny of contractors on their financial statements and reputation

was necessary before tender award to avoid selecting contractors who had no capacity to

deliver projects. That would go a long way in avoiding disputes and promoting ‘good

faith’ between parties.

5.2.5 The concept of defined and disallowed costs were considered as affective resource

management to a project as payments could be done for actual cost and not on

unnecessary costs incurred by the contractor. However the cost-reimbursable route

generally had a higher risk to the client, and as a recommendation it could be combined

with the concept of target cost so that cost savings could be realised.

5.2.6 It was worth noting that NEC 3 contract was in use in Zimbabwe even though not on

many projects. Objective thinking by the construction players on such new forms of

contracts, willingness to change and pursuance of informed decisions could go a long

way in improving practices on projects.

5.3 Recommendation for future studies

Further research could explore the analysis of NEC 3 contract on time management. It was an

area that needed thorough research. Most research work on the NEC 3 contract focused on its

general overview but not the specifics of project management principles.

50

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54

APPENDIX 1

QUESTIONNAIRE

The researcher is a student currently studying a Master of Science Degree in Construction

Project Management at National University of Science and Technology. In partial fulfillment of

the Degree, a questionnaire has been prepared to address the dissertation topic titled ‘An

analysis of NEC 3 contract as a cost control measure on building projects: A case of private

sector construction industry in Zimbabwe’. You are kindly requested to answer the questions

below. Some questions are closed-ended and will require ticking inside a box provided, while

others are open- ended. Your responses to this questionnaire will be strictly confidential and

shall be used solely for academic purposes.

SECTION 1: RESPONDEND PROFILE

1.1 Profession: A. Architect B. Q .S C. Engineer D. Client Expert

E. Contractor F. Other: Please specify……………………

1.2 Indicate the level of experience in the construction industry:

A.1-5years B. 6-10years C. 11-20 years D. Over 20years

55

SECTION 2: EXTENT OF USE OF NEC 3 CONTRACT IN ZIMBABWE

2.1 Indicate the extent of use of the following procurement routes in Zimbabwe:

0-Not used 1-Very limited 2-Limited 3-Extensive 4-Very extensive

0 1 2 3 4

Traditional Method/

Separated

Design and

Build/Integrated

Management

Contracting/Packaged

Method

Collaborative/

Relational Method

Target cost

2.2 Indicate the level of use of the following Standard Forms of Contracts in the private

sector of Zimbabwe:

0-Not used 1-Very limited 2-Limited 3-Extensive 4-Very extensive

0 1 2 3 4

NEC 3

FIDIC

Contracts

JCT 80

ZGCC4

CECCZ

CIFOZ

56

2.3 Indicate the level of use of the following Standard Forms of Contracts in the public

sector of Zimbabwe:

0-Not used 1-Very limited 2-Limited 3-Extensive 4-Very extensive

0 1 2 3 4

NEC 3

FIDIC

Contracts

JCT 80

ZGCC4

CECCZ

CIFOZ

SECTION 3: ANALYSIS OF THE NEC 3 CONTRACT COST CONTROL MEASURES

3.1 NEC 3 contract has cost control measures that it provides. Please indicate your perspective on the

suitability of each on Zimbabwean private sector construction industry in the appropriate box.

1-Strongly disagree 2-Disagree 3-Don’t Know 4-Agree 5-Strongly Agree

Cost Control

Measures

1 2 3 4 5

Time-barring of

compensation events

Programme of works

to be part of contract

No Provisional Sums

Gain/Pain share of

financial

savings/losses

Project Manager for

supervision

Early warning

system

57

3.2 Considering the general culture of the construction industry in Zimbabwe, what is your

view on the adoption of cost control measures of the NEC 3 contract?

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………

Thank you for taking time to answer this questionnaire. It is much appreciated!

58

APPENDIX 2

INTERVIEW GUIDE

SECTION 1: RESPONDENT’S PROFILE

1.1What is your profession?

1.2How many years of experience do you have in the construction industry?

SECTION 2: ANALYSIS OF NEC 3 CONTRACT AS A COST CONTROL MEASURE

2.1NEC 3 contract has a provision for a Project Manager as a client’s representative to supervise

the works, and not necessarily the designer (Architect/Engineer). How feasible is this aspect

considering the status quo in Zimbabwe which usually has Architect/ Engineer at the helm?

2.2 NEC 3 contract does not have a provision for Provisional Sums. What is your analysis on the

applicability of this cost control feature on a project?

2.3 Programme of works is made part of the contract in the NEC 3 contract as a way of

managing time. A contractor is sanctioned if they default in submitting or updating a programme

of works. How feasible is this approach on construction projects in Zimbabwe?

2.4 NEC 3 contract has an option of Z-clauses that allow for amendments to be included in a

contract. What do you think can be the effect of Z-clauses on the general cost controls and what

is your recommendation, if any?

2.5 In the NEC 3 contract, compensation events come with a time-bar clause that states a

contractor should give notice within 8 weeks of becoming aware (or should have become aware)

of an event that will increase time/cost of a project. Failure to give such a notice within stipulated

period may result in the contractor’s claim not being entertained. What is your view with regards

to cost savings and the feasibility of such a stance in Zimbabwe?

2.6 The NEC 3 contract has defined and disallowed costs under cost reimbursable procurement

route. By definition, these are actual costs and costs incurred by the contractor as a result of

incompetence respectively. The procurement route promotes the payment of defined costs while

it does not entertain costs that are borne from the contractor’s incompetence. What is your view

on this cost control feature and how can it be applied in the construction industry in Zimbabwe?

2.7 What is your opinion about partnering and collaboration relationship between contractor and

the client in light of cost controls?