NEC4: Second set of amendments and a nod to recent case law
20 November 2020
On the 30 October 2020, the NEC published its second set of amendments (the first being in January 2019) to its NEC4 suite of contracts. The latest amendments take account of recent legal developments as well as user and industry feedback. This article explains what the main changes include and the effects they have on the NEC4 suite of contracts.
Amendments have been made to all of the NEC4 contracts that contain an option for delay damages in that the relevant clauses (X7) have been amended to clarify that any delay damages cease at termination. Any further delay costs that occur after termination will be considered as part of the general costs / damages due as a result of the termination of the Contractor / Supplier’s obligation to provide the goods, works or services. Previously the NEC4 wording provided that delay damages would accrue until Completion or (where applicable) taking over the works occurred.
The NEC4 amendments to this option have been included to reflect the Court of Appeal decision in May 2019 in the case of Triple Point Technology –v- PTT Public Company (“Triple Point”). In that case, a clause very similar to the original NEC4 delay damages clause was held to be inapplicable on termination, meaning that the liquidated damages that had accrued up until that point fell away, resulting in the Client being only entitled to a (generally less valuable) right to claim general (unliquidated damages).This judgment was a major departure from the industry’s understanding as to the position in respect of liquidated damages and termination.
The Triple Point case was appealed and heard recently in the Supreme Court on the 12 November 2020 and the decision is eagerly awaited by many to provide definite guidance in this aspect.
Dates for Payment
Another amendment that has arisen due to case law is in relation to Secondary Option Y(UK)2 (The Housing Grants, Construction and Regeneration Act 1996) following the decision of the TCC in the case of Rochford Construction –v- Kilhan Construction (“Rochford”).
In Rochford, the court found that final dates for payment which are tied to an event or mechanism such as an invoice would not be compliant with the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“Construction Act”). Although the court’s findings were obiter (i.e. not strictly necessary for the decision in that case) and may be challenged in the future, it has caused parties (and the NEC) to consider and produce amendments to their existing contract terms.
For contracts subject to Northern Irish law, Option Y(UK)2 is often selected but with amendments used to replace the Construction Act with the equivalent NI legislation (i.e. the Construction Contracts (Northern Ireland) Order 1997 as amended by the Construction Contracts (Amendment) Act (Northern Ireland) 2011).
The NEC amendments in respect of Option Y(UK)2 mean that the final date for payment is now a fixed period of time from the “due date” and no longer runs from the date of receipt of an invoice by the payer. The “due date” is now the later of:
- The date of receipt of an invoice by the paying party; or
- Fourteen days from the assessment date.
The Rochford case has also caused parties to all construction contracts (not just NEC) going forward to consider the payment provisions therein and ensure that contractual final dates for payment are fixed by reference to set periods from due dates, and not by reference to an event such as the issue of an invoice.
The latest set of NEC amendments also includes revisions relating to:
- Option X22 (Early Contractor involvement) – This Option has been amended to provide greater flexibility in the development of a project in Stage One and to provide a more structured process for the Contractor’s submissions and the notice to proceed to Stage Two. As part of the changes the Project Manager and Contractor are required to agree any changes to the access dates, key dates and the completion date that may be necessary, in addition to agreeing any necessary changes to the total of the prices.
- Option Y(UK)1 (Project Bank Account) – This Option has been amended and updated in respect of the following aspects:
- Choice of account holder – The Client now decides whether the account is held by the Contractor or whether it is held jointly by the Contractor and the Client;
- Electronic Banking – Procedures updated to reflect modern electronic bank methods;
- Payment Schedule – A form of Payment Schedule is included, which replaces the authorisation document; and
- Project Bank Account Tracker – The Contractor is now required to prepare and continually update a Project Bank Account Tracker, which contains a register of all payments made to and from the Project Bank Account.
- Contractor’s liabilities and use of equipment, plant and materials – Clause 8.1 has been amended in the Term Service Contract, Term Services Subcontract and Design Build Operate Contract to clarify that the Contractor is liable for loss or damage to any equipment provided to it by the Client. The amendments have also simplified the provisions in clause 7 of those contracts which set out the Contractor’s rights to use equipment, plant and materials and other materials provided by the Client.
A full schedule of amendments for each of its contracts can be found on the NEC contract website.
It remains to be seen as to what effect(s) in practice these amendments have in relation to NEC4 contracts going forward, and also as to whether the positon regarding delay damages will need to be revisited following the awaited Supreme Court judgment in the Triple Point case.
For further information about this or any other construction matter please contact Carson McDowell’s Construction team.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.