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Introduction
Introduction
This proposal establishes the NEC4 Option C contract form for the nine-storey mixed-use development at Mollstraße/Otto-Braun-Straße, Berlin, costing €100.68 million and taking 24 months. Chosen for its collaborative risk-sharing and flexible cost management, Option C is appropriate to the project's complexity and inner-city limitations. Its principal features are:
Gain/pain mechanism driving efficiency
Open cost monitoring activity schedules - Secondary clauses (X7, X5, X22, Z) for delays, retention (3%), early contractor involvement, and local compliance
Two-stage D&B procurement ensures that there is early contractor involvement, minimizing permit risks, inflation risks, and aggressive scheduling risks while aiming for cost and time efficiency for this middle-class residential-business hybrid.
With great pleasure, we offer this contract proposal for the construction of a nine-story mixed-use building in Berlin that includes a one-story underground parking structure and green roof. The project consists of a mix of residential and commercial buildings that are constructed to contemporary urban standards with an emphasis on efficiency, sustainability, and end-user utility. We have chosen a procurement and delivery method that strikes a compromise between program certainty, cost transparency, and design quality because of the project's complexity, central urban position, and the participation of both domestic and foreign partners.
For the proposal for selected Berlin project – site 1 new build, we have considered two standard forms of contract that we believe would be appropriate, The NEC4 Engineering and Construction Contract (ECC) and VOB/B -Verdingungsordnung für Bauleistungen – Teil B. The NEC4 is an engineering contract that sets out legal framework and establishes the relationship between contractor and client in the construction projects. NEC values the spirit of mutual trust and cooperation, offers flexibility with its procurement strategies and tailors to variety of different project needs (Contracts | Products | NEC Contracts, 2019). After doing research on German construction industry, the use of VOB/B is highly preferred within the industry as it offers traditional approach, and provides guidance on execution and framework for defects and acceptance. It is also the main standard contract used in public and private sector therefore there is an aspect of familiarity and confidence, which became apparent during the construction of Uber area, where FIDIC GMP was used resulting in subcontractors not wanting to work under a contract that was unfamiliar to them.
Which contract to go for?
Which contract to go for?
After careful consideration, it has been decided that NEC4 would be more suitable for this project because of the strong focus on proactive management and collaboration as well as detailed risk managements mechanism that are crucial for a complex project of mixed use which could easily go wrong. Another important aspect is the flexibility that NEC4 provides depending on the needs of the project and the contracts terms are easily customisable allowing the client and contractor to create a contract that will benefit both parties equally.
As mentioned before, German contractors and sub-contractors are wary when it comes to international forms on contract that are not familiar to them, however to resolve this issue we have
decided to go for contractors and subcontractors that are United Kingdom (UK) based but operate in Germany on international projects, companies such as Mace, Turner and Townsend or ISG offer project managers, cost managers and bring MEP subcontractors.
Which option is recommended?
Which option is recommended?
The recommended option for NEC4 is option C which is a target contract with schedule activity. We believe this option is the most suitable for this project as option C is mostly used for risk sensitive, complex and multi-purpose projects. Option C operates on gain and pain mechanism meaning any overspending/ underspending is shared between the client and contractor, this encourages both parties to act efficiently, and potentially come up with better solutions. As the contractor has financial motivation to act efficiently, they act as a cost partner rather than cost recipient, building stronger trust between both parties and offering transparency.
Another motivation for the contractor to work efficiently is the activity schedule with prices linked to the target costs. With the work activities having assigned value and contractor receiving payment after the completion of specified task, there is a higher incentive to complete the works faster in order to receive the payment certificate, this is significant as the projects duration is 24 months which is considerably low for the given complexity. The activity schedule is also beneficial as it allows to track planned value compared to actual cost, essentially enabling to identify scope drift, budget strain, or program delays early on, which is crucial for intricate urban developments.
As mixed-use developments typically undergo design changes during the early construction phrases, option C allows for flexibility in case the client decides on updating certain parts of the project. In the scenario where there will be last minute changes from commercial tenants, fit outs adjustments or changes to mechanical, electrical, and plumbing (MEP) system, option C allows for the change of target costs by either increasing or decreasing it through the use of compensation events (CEs) when design or scope changes occur.
Additional changes and conditions
Additional changes and conditions
The recommended secondary clauses that we believe would be beneficial listed below:
X7 Delay damages
Outlines the damages the contractor is required to pay for the late completion.
As previously mentioned, the duration date for the project is 24 months, creating a tight deadline for a completion of such large and complex project. Considering the area is multi-function with residential and commercial area, the tenants might have a set date in which they can officially occupy their part of the area. It is crucial that the development is completed on time in order to ensure smooth handover and if the contractor fails on that part, the client can receive liquidated damages, the industry standard has been established to be 0.03% to 0.1% of contract value per day and we will cap it at 10% of contract value.
X5 Retention
Retains a portion of payment until works are defect-free, as insurance for the Client.
We recommend adding a retention clause ( of 3%) into the contract to ensure a financial protection to the client in case of any unexpected events occurring as well as It helps to ensure that the contractor is completing their work to a reasonable standard. If the works is not satisfying the contractual standards, then the client can use the retention to employ someone who can rectify the defects caused by the contractor. (Metroun, 2020).
X22 Early contractor involvement
This clause will allow the contractor to be involved in the pre-construction process such as reviewing drawing, programme and early procurement as well as during the construction phrase when work is being delivered. We believe including this clause will be beneficial as with the help of the contractor there is a higher chance of recognising particular risks and discrepancies before the works goes ahead. As with the option C, the target cost is set after the coordination, therefore if the contractor is involved in the earlier stage, it allows for open book pricing to be created leading to more accurate costing. (Metroun, 2020).
Option Z
Lastly, due to the project taking place in Berlin, option Z is recommended as it is a custom clause that allows for both parties to tailor the contract to specific needs, such as German local requirements like GBG in order to comply with Germany’s civil law. Option Z also established dispute resolution, replacing the NEC4 adjudication with German arbitration to ensure enforceability. (NEC4 Option Z for Additional Contract Conditions: Clarity or Curse? | News | NEC Contracts, 2025).
Tendering and Procurement Methods
Tendering and Procurement Methods
The proposed tendering method for the 9-storey building that is for both commercial and residential use, with green roof and underground basement is a two-stage tendering. Similarly to secondary clause X22 that allows for early contractor involvement, two stage tendering works on the similar basis; the contractor can offer their advice on cost planning, procurement, schedule, and buildability in order to achieve agreed target cost and try to minimise the risks. In order to meet the criterion, bidders will be asked to provide a technical proposal that includes their best solution. After the proposal will be evaluated and the best contractors will be picked out and eventually submit the final offer for financial proposal.
First stage
In the first stage we will appoint a contractor to work alongside the design team in the pre-construction phrase, then the contractor will give their input/develop on:
Risk register
Buildability
Activity schedule for preliminaries
Procurement strategy
Develop open-book cost plan using NEC4 Defined Cost model
(Baker, 2025).
Second stage
The second stage will include a construction works after all the activities from the first stage has been completed, those will include:
Final Activity Schedule.
NEC4 Option C contract execution.
Start on site with Stage Two scope
(Baker, 2025).
After conducting research on Germany’s construction market, we have found that it is a highly regulated market that is technically advanced, with international contractors partnering with German subcontractors to satisfy labour compliance (Osing, 2022). Construction projects in Berlin often require long permitting cycles, strict noise regulation and challenging urban access for crane setup and deliveries, by using two stage tendering, the contractor is involved in create site logistics planning in advance and plan out works early while waiting for approvals.
Two stage tender process would also be beneficial for getting investors for the project, as it promotes cost transparency and schedule certainty. Ensuring that risk register is done as accurately as possible and all the risks have been considered and accounted for will decrease the chances of any costs overruns. This type of tendering combined with our chosen contract NEC4 will allow for open book access to defined cost, and if the NEC4 has a secondary clause Z it will enable third party auditing further increasing the transparency.
Factors considered for choosing procurement method
Factors considered for choosing procurement method
When we were considering the procurement method for this project we were considering:
Time
Cost
Quality
Those three factors were considered to determine how risks and responsibilities are allocated within the project and what we need to focus on to deliver the project that meets our clients’ expectations. The selected project is located in the east side of Berlin, that is mainly occupied by residential building that is considered middle class; therefore, our main focus will be time and cost over the quality. This decision is justified by the area's relatively low economic profile and the absence of significant activity or investment that would provide rationale to prioritise high-quality construction standards. The Design and Build procurement route is recommended for this project, as it offers a well-balanced approach that supports the required construction duration and budget objectives, while also providing strategic advantages to the client.
Figure 1: (Design Build vs. Traditional Construction Methods: Which One Is Right for Your Project, 2024)
Time
Time is an important factor as it affects multiple aspects of the construction aspects such as cost (increased prelim and labour costs if the project overruns) revenue ( if the tenants cannot occupy the area on time) and risk exposure. As mentioned previously, Germany is heavily regulated and the waiting times for permits and lead in times can cause delays of the programme, it is crucial that
during the pre-construction planning any potential delays are accounted to achieve better logistic. Design and Build (D&B) , combined with two stage tendering will allow for an overlap between the design and construction, that way the contractor alongside the rest of the construction team can consider:
Long lead in times
Urban constraints
Risk of inflation (as the project is 24 months and other economic factor can also impact the rate of inflation
Permits
In D&B appointing the contractor is one of the first actions taken, it is done before the design is completed to ensure that all of the professionals can be included in the design process for better accuracy, unlike in the traditional route where the design has to be fully completed in order to proceed with the works. D&B process is also time efficient as it comes from single point of responsibility as the contractor works on both design and construction ensuring that everyone is aware of their role and the collaboration is a crucial part of this procurement method. Since the collaboration/communication is better than in the traditional method, as everyone works closely together, that also means there is a faster accommodation to change requested by the client; On top of that any additional changes in the design can be priced and approved internally by the D&B team.
Cost
The second factor that we considered is cost. Cost plays an important part as we want to ensure that the costs will not exceed the proposed budget. The way that price is determined, managed, and controlled when choosing a procurement technique influences whether a project succeeds or fails. Just like in the time factor, the single point of responsibility has also a significant influence on cost as There will be fewer cost claims and unstated extras if the architect and builder are not shifting their focus on who was to blame in case of any discrepancies. Due to contractors’ early involvement, it is up to the contractor to price the project based on the clients’ requirements as well as the provided design, promoting early price certainty as the prices are fair and realistic. D&B also allows for value engineering, meaning the contractor can contribute into decision making of removing or substituting actions that are either unnecessary or costly and replacing them with methods that will allow for further saving whilst still maintaining high standards and functionality.
Presented By: Janiszewska, Sylwia
(34054615)
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