NEC4 contracts: evolution not revolution
The new NEC4 contract suite has been described as "an evolution not a revolution". Indeed, the substance and form of the NEC contracts remain largely unchanged. NEC is, however, an increasingly popular form of contract and those in the industry need to understand the refinements made in the new suite.
It is worth noting that NEC have introduced two entirely new contracts into the suite:
- NEC4 Design Build Operate Contract (DBO): This consolidates the Contractor's responsibility for design, construction and operation of a project into a single contract. It is intended to be flexible and enable a more integrated whole-life delivery solution allowing the services to be provided before, during and after construction works are completed.
- Alliance Contract (ALC): This form joins all members of the project team into the one contract. This style of contracting will be familiar to those already using TPC / PPC. The ALC is intended for use on large, complex projects and contains an integrated risk and reward model. Note that it is only available in consultation form at present.
In addition to the new contract mentioned above, NEC4 also introduces a number of new features to its existing range of contracts.
In our view, many of the new features are introduced in an effort to minimise the need for a lengthy schedule of amendments to each contract, via the 'Z' clauses. However, despite the changes, it is likely that clients will still require numerous project specific amendments to be made, particularly on more complex projects.
- Early contractor involvement: This is now included as an optional 'X' clause, allowing the parties to adopt two stage contracting in line with modern trends for this form of tendering.
- Value engineering: New provisions within NEC4 enable both the Project Manager and the Contractor to propose positive changes to improve the outcome of the project. This includes a right for the Contractor to propose a change to the scope to reduce costs, as well as a right for both the Contractor and Project Manager to propose an acceleration to achieve completion before the completion date.
- Contractor's design (in respect of design and build contracting): The design responsibility of the Contractor has been brought in line with the industry standard so that the requirement is now to use the skill and care normally used by professionals designing similar works. The Contractor is also now required to hold professional indemnity insurance and a retention of documents clause is included specifically for design information.
- Acceptance of programme: Is now deemed to take place if the Project Manager does not respond to the programme issued by the contractor. This is definitely one for Project Managers to look out for, as deemed acceptance of an unsuitable programme may have wide-ranging implications for the project, particularly if the contractor has obligations to interface with other contractors at particular points in the programme.
- Allowable costs (in respect of cost based contracts Options C, D, E and F): NEC has included clauses aimed at bringing commercial finality to the costs due under the various variable cost Options of the NEC suite; it being accepted that what qualifies as allowable and disallowed costs was a constant bone of contention between parties using these Options. The 'Defined Cost' and 'Disallowed Costs' are now deemed accepted if the Project Manager does not respond within 13 weeks.
- Final accounting: On a similar theme, more certainty is given to the final accounting process. The Project Manager is now required to issue a final assessment of payment due to the Contractor within four weeks of the issue of the Defects Certificate. The Contractor may issue its own final assessment if the Project Manager fails to do so. The final assessment becomes conclusive if not challenged by either party.
- Dispute resolution: NEC4 introduces a four week escalation period, during which senior representatives of each party must seek to reach a negotiated solution. Only after this period can any proceedings be commenced. The mechanism is intended to enhance collaboration between parties. For construction contracts, this will not cut across the statutory right to adjudicate 'at any time'. However, for non-construction contracts, it will be a mandatory process.
- In addition to the above new features, there have also been a number of changes in terminology. For example, the 'Works Information' becomes the 'Scope' and the 'Employer' becomes the 'Client'.
- Further clauses relating to anti-corruption, confidentiality and an option to allow the Client to require undertakings to others (collateral warranties) have been introduced. There has also been an amendment to the assignment provisions allowing either party to transfer the benefit of any rights under the contract to another party. Employers will be looking to amend this provision.
- In conclusion, none of the changes are ground-breaking or drastically affect risk allocations or processes within the NEC suite. Many employers were already amending the NEC contracts to cover off the above issues anyway. Thus, in our view, the refinements by NEC make sense and reflect the day-to-day reality of using NEC.