A new version of NEC contracts introduces major changes

Hot on the heels of the updated JCT contracts comes publication of the new version of the NEC suite of contracts, NEC 4.  This replaces the NEC 3 contract, which was published 12 years ago.  The new suite includes new forms of contract, such as the professional service sub-contract, the design, build, operate contract and the term service sub-contract.  Peter Allen explains further: 

New options in the contracts include provisions for building information modelling (BIM), early contractor involvement, collateral warranties, retention bonds, value engineering proposals and dispute resolution boards.  It is an evolution of the NEC 3 contract and is designed to expand its appeal to different types of projects, as well as international projects.  Many Government departments endorse the use of the NEC form of contract.

It should be remembered that the NEC contract is not viewed, by its creators, simply as a document to be signed at the start of the project and put away until the end, or used if a problem arises.  It is designed to be a project management tool to assist its smooth running.  The contract has a clause confirming that the parties will act in the spirit of mutual trust and co-operation and this is fundamental to the contract working successfully.  If used properly, this leads to proactive risk management, open communication and the willingness to work together to solve problems, whatever their cause.  The new form of contract tries to build on this, providing greater opportunities for good management of projects and supporting new approaches to procurement.  New features include:

• Contractor’s proposals
  These are clauses allowing a contractor to propose a change to the scope of works to reduce the cost, or a way to accelerate the programme to achieve an early completion.  The project manager and client have the choice whether or not to accept such proposals.
   
• Design and build 
  There is a new option for full design and build responsibility being passed to the contractor.  The new clauses deal with the duty of care to be provided, insurance, intellectual property ownership and retention of documents.
• Consensual dispute resolution
  A new process of negotiation has been incorporated into the dispute resolution process.  Whilst this cannot override the absolute right to refer a dispute to adjudication where the Construction Act applies, it may lead to disputes being resolved earlier.
• Dispute avoidance board
  Where the Construction Act does not apply, this is also an option.  A board, made up of individuals nominated by the parties, is set up and becomes familiar with the project.  If a dispute does arise it is referred to the dispute avoidance board for them to review.  They can provide a recommendation to resolve the dispute and hopefully that recommendation will be accepted by the parties: a method that has the potential to reduce the number of disputes.
• Finality of assessments
  Procedures have been introduced to allow the cost of works to be finalised as the project proceeds.  This includes default provisions so that if the project manager does not respond, then the sums claimed are treated as accepted.  The accepted figures cannot be reviewed after the works have been completed.
• Payment provisions
  It is now a requirement for the contractor to make an application for payment.  If no application is made then the contractor will not receive a payment.
• Collateral warranties
  A secondary option has been added, requiring collateral warranties (known as ‘undertakings’ in the NEC contract) to be required from other parties.
   
• Early contractor Involvement 
  There is an option for the contractor to become involved in the project at an early stage and participate in the development of the design and proposals.  It means that a contractor can put forward proposals for improvements and innovations that may save costs, reduce time and improve profit.  It also means that potential problems can be identified and either eliminated or the risk reduced.
• Additional compensation events 
  This optional clause allows additional compensation events to be added.  Risk can be allocated in different ways, depending on the particular situation of the construction works.

These are some of the major changes to the NEC contract.  This form of contract is becoming more and more popular and all contracts under Phase 1 of the High Speed 2 (HS2) Project use the NEC suite of contracts.  As well as its many advantages, this is a significant alternative to other forms of standard contract.  For further information or advice please contact Peter Allen at our Chelmsford Office on 01245 453 813 or email [email protected].