NEC4 - Evolution not revolution
05 March 2018
The NEC4 suite of contracts was released on the 22 June 2017 and the NEC’s intention was for these contracts to update and replace the previous NEC3 suite of contracts. NEC contracts have become the public sector contracts of choice in the UK, being used for nearly all projects procured by national and local government bodies and agencies. As such, although uptake in using the new NEC4 contracts has initially been slow, it will be interesting to see how keen the industry is to eventually move on from the previous versions and to utilise the 2017 versions of the NEC suite.
There are plenty of new features (in the form of new contracts, new clauses and new terminology) to consider in the NEC4 suite of contracts as set out below.
The NEC4 introduces two new forms of contract. These are:
- the Design, Build and Operate Contract (DBO) which combines responsibility for the design, build, operation and/or maintenance from a single supplier; and
- the Alliance Contract (ALC), a single collaborative multi –party contract based on an integrated risk and reward model. It is intended that the ALC will be published at some stage during 2018 (following consideration by the NEC of the consultation feedback that it has received to date on this form of contract).
New Core clauses and secondary Options:
There are a number of new Core clauses in the NEC4 suite (i.e. Bribery and Corruption; Transfer of Benefit (Assignment) and Confidentiality and Publicity). New secondary Options include the following options:
- Contractor’s Design and Build Option (for the ECC and ECS forms only)
- Dispute Avoidance Board
- Collateral Warranties (known as “Undertakings to others”)
- Early Contractor Involvement
- Building Information Modelling (“BIM”)
Key new features:
There have been a number of features introduced in the NEC4 suite of contracts by the new clauses and secondary Options (and by amendments to the existing Core clauses). These include:
- (a)Contractor’s design (design and build) option
- (b)Finality of assessments and payment provisions
- (c)Consensual dispute resolution
- (d)Additional compensation event
A new secondary Option clause (X15: The Contractor’s design) has been created to provide for design and build (D&B) contracting. The Contractor’s design duty has also been aligned to the industry standard preferred by insurers (i.e. to use the skill and care normally used by professionals designing similar works). The NEC3 contracts do not expressly deal with the standard of care in relation to design, meaning that under the NEC3 it could be argued that the Contractor would be subject to an absolute fitness for purpose obligation (in the absence of optional clause X15 (Limitation of the Contractor’s liability for his design to reasonable skill and care) being selected).
New provisions aimed at reaching agreement on the final amounts due under any of the contracts have been included in the NEC4 suite. Under the cost based contracts (main Options C, D, E and F) the Contractor (at his request) is now allowed to instigate a review and acceptance of its Defined Cost by the Project Manager. The Project Manager is also now required to issue a final assessment of payment due to the Contractor within four weeks of the issue of the Defects Certificate. If the Project Manager does not do this, the Contractor may issue its own final assessment. The assessment becomes conclusive if not challenged by either party within four weeks of it being issued. Periodic assessments now require an application for payment by the Contractor. If no application is made by the assessment date, the Contractor will not receive payment.
NEC4 introduced a four week period for escalating and negotiating disputes prior to any formal proceedings being commenced. This is a mandatory requirement where the Construction Contracts (Northern Ireland) Order 1997 applies (the Housing, Grants, Construction and Regeneration Act 1996 being the equivalent legislation applying in England and Wales).
A new compensation event has been included whereby in the event the Project Manager notifies the Contractor that the quotation for a proposed instruction is not accepted, this then allows the Contractor to recover the cost of preparing that quotation.
Other significant changes
- Terminology – changes in the terminology used have been made (e.g. ‘Employer’ has been replaced with ‘Client’ throughout the suite; ‘Scope’ has replaced terms such as ‘Works Information’, ‘Service Information’ and ‘Goods Information’).
- Schedule of Cost Components (SCC) – changes have been made in an attempt to simplify the SCC and associated Contract Data inputs. Some of the changes include: moving the Subcontractor costs to the SCC and removing the Shorter Schedule of Cost Components from options C, D and E. There is also now only one Fee percentage in the NEC4 contracts, with no separate Fee percentage for subcontracted works.
- Programme – new provisions provide that a programme can be treated as accepted if the Project Manager fails to respond to the programme provided by the Contractor.
- Compensation event process (Short Contracts) has been simplified and the Contract Data across the suite has been reformatted.
It would appear that whilst the NEC has introduced in the NEC4 suite a number of welcome changes, it is likely that bespoke Z-clauses will remain a fact of life for users. It also remains to be seen how keen the industry is to embrace NEC4 and move away from the more familiar NEC3 contracts that have now been in use for over a decade.
Here at Carson McDowell we have experience in all forms of NEC contracts. For further information about this or any other construction matter please contact Carson McDowell’s construction team.