08 Aug 2017

The arrival of NEC4

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What you need to know

The NEC4 suite of contracts was officially released in June 2017, described by the NEC Contracts Board as "Significant evolution, not Revolution". The suite retains the fundamental NEC philosophy of promoting good project management and co-operation, whilst introducing change which seeks to support the requirements of users and appeal to a wider audience, both domestically and abroad.

The changes include a raft of new Main and Secondary Options which reflect common industry practice and should reduce the abundance of the 'Z-clause'. NEC4 also marks the introduction of two new forms of contract: the Design, Build and Operate Contract; and the Alliance Contract.

NEC4 has been endorsed by the UK Government and looks set to continue the trend of NEC contracts being used on high-profile public funded projects in the UK.

New forms of Contract

Described by NEC as an "integrated whole-life delivery solution", the DBO Contract allows the Client to procure design, construction, operation and maintenance services from a single supplier.

The DBO Contract is intended for use in the procurement of a range of operation and maintenance services, from lifetime operation of an asset to basic facilities management. Its flexibility may have greater appeal to some users than contracts such as the FIDIC Gold Book which envisages Contractor operation and maintenance for 20 years post-commissioning.

The Alliance Contract, currently published in consultation form, is a multi-party contract with an integrated risk and reward model which NEC envisages will be of use in large, complex projects. It is designed to promote more collaborative forms of working, although whether it is successful in practice will depend in large part on the willingness of the parties to co-operate.

Key changes to NEC clauses and options

  • Contractor's proposals: NEC4 provides a new procedure for Contractor proposals, e.g. to change the Scope in order to reduce cost, or to accelerate in order to achieve Completion before the Completion Date. The Project Manager's acceptance of the Contractor's proposal is required in each case. It remains to be seen whether formalising this process in the Contract will improve the Contractor's ability to positively impact on the cost or progress of the works.
  • Contractor payment applications: Across the NEC suite, the Contractor is now required to submit applications for payment for periodic assessments, absent which, the Project Manager will not assess payments due to the Contractor.
  • Disclosure and confidentiality: New provisions restrict the parties' disclosure of information obtained in connection with the works (e.g. in the ECC disclosure is prohibited unless necessary to carry out a party's contractual duties). We anticipate that parties may seek to more explicitly define the permitted parameters of disclosure.
  • Assignment: A new Core Clause provides that the Contractor must simply notify the Client if it intends to transfer the benefit of the contract, and that the Client must notify the Contractor and procure that the new Client intends to act in the NEC 'spirit of mutual trust and co-operation' before assigning. This fetter on the Client's right to assignment may be unacceptable to some, including funders taking an assignment as part of a security package.
  • Final assessment: The NEC4 cost-based contracts require a final assessment by the Project Manager of the amount due under the Contract no later than four weeks after issuance of the Defects Certificate. This NEC evolution echoes existing final account provisions in JCT and FIDIC standard forms.
  • New 'Contractor's Design' Secondary Option: The 'Contractor's Design' Secondary Option aims to better support design and build contracting. The Option provides for the Contractor's: design duty; obligation to provide PI insurance; IP ownership; and retention of design documents.
  • New 'Collateral Warranties' Secondary Option: This development acknowledges the common practice of Clients obtaining collateral warranties for their own or third parties' benefit. However, NEC4 does not provide a standard form collateral warranty, nor does it provide for the consequences of a Contractor's failure to provide a warranty as required.
  • 'Termination by the Client' Secondary Option: Formerly a Core Clause under NEC3, the Client's right to terminate at will is a Secondary Option under NEC4. However, it is likely to remain a requirement of many Clients.
  • Resolving disputes: Revised Main Options W1 and W2 provide for a new tier in the dispute resolution procedure requiring nominated Senior Representatives to seek agreement on a dispute prior to formal proceedings. NEC4 ECC also includes a new 'Dispute Avoidance Board' Main Option, whereby parties nominate one or three dispute avoidance board members who must pro-actively manage the risk of dispute during the life of the Contract, and, where a dispute arises, must provide a non-binding recommendation on the same.
  • 'Information Modelling' Secondary Option: Designed to support parties' use of Building Information Modelling, the Option provides for: Contractor provision of an Information Execution Plan; Information Model ownership; parties' liabilities in relation to the Information Model; and BIM early warning obligations. The Client is required to provide BIM Requirements, and in the absence of a NEC pro forma, Clients are likely to invoke existing BIM Protocols as a basis for its BIM Requirements.
  • Other changes: NEC4 introduces a number of non-substantive changes, including those which promote user-friendliness and consistency across the suite. For example, 'Client' and 'Scope' is now used across the suite, replacing former use of 'Employer', and 'Works Information'. The NEC4 language is also gender neutral.

Conclusions

NEC4 retains the fundamental NEC philosophy of promoting good project management, offers clients the ability to procure a wider range of services from a single supplier using the DBO Contract, and introduces many amendments and Options which are in line with common industry practices. However, other standard clauses, such as the inclusion of a Contractor obligation to comply with statutory requirements or prohibition on the use of prohibited or deleterious materials remain missing and resort to the "Z-Clause" is likely to continue. Overall, with government endorsement and an underlying philosophy which is favoured by many, NEC4 will be a popular device for contracting parties.

 
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KEY CONTACT

Paul Thwaite

Paul Thwaite
Partner

T:  +44 20 7809 2341 M:  +44 7881 913 246 Email Paul | Vcard Office:  London

Amy Crocker-White

Amy Crocker-White
Associate

T:  +44 20 7809 2963 M:  +44 774 007 8064 Email Amy | Vcard Office:  London