NEC4 is coming….

5 Mar 2017 | Contracts

First there was the New Engineering Contract, followed closely by its successor, the NEC2, but it wasn’t until the arrival of the NEC3 that the contract became popular and widely used.

Twelve years after the launch of the NEC3, we can now look forward to the new, streamlined and updated NEC4, due for publication in June of this year.

Said to be an evolution not a revolution, the new contract has been developed with user feedback from those in the industry and from those in the NEC users group.

What do we know so far; according to the official press release:

There are new forms of contract added to the suite

The Design, Build and Operate Contract brings together design, construction, operation and maintenance allowing procurement from a single supplier for a whole-life delivery solution.

The Alliance Contract allows clients to fully integrate the design team into a single contract with many participants allowing deep collaboration between all parties.

The Adjudicator’s Contract has been renamed as the Dispute Resolution Service Contract.

There are new features

Contractor’s proposals allow a Contractor to make suggestions to value engineer the works or to accelerate to achieve Completion before the Completion Date. The Project Manager can accept or not accept or ask for a quotation. A new secondary option allows the Contractor to suggest a change to reduce the whole life cost of an asset. If accepted, the Contractor will share the saving.

Defined Cost, as used under the ECC, has been extended into the Professional Services Contract, the Term Service Contract and the Supply Contracts which also now all use the Schedule of Cost Components.

Contractor’s design is now dealt with by way of a new secondary option rather than by way of an inclusion in the works information. This also seems to be coupled with a change in the clauses dealing with design liability from the wholly inadequate X15. It does seem, however, that the Contractor will now be required to produce a design using the reasonable skill and care of a professional designer, rather than a design and build contractor. New provisions have been created to deal with professional indemnity insurance, intellectual property and retention of documents.

Consensual dispute resolution, being mandatory under W1 and consensual under W2 (otherwise it would be struck out by the legislation), requires that disputes are escalated for a four week period of discussion and negotiation between senior people of each party before referral to adjudication.

Dispute Avoidance Board option (W3) can be used where W2 does not apply and introduces the facility for a nominated board to decide the outcome of any dispute under the contract.

Finality of assessments. A welcome addition to NEC requiring the Project Manager to issue a final assessment of the sum due within 4 weeks of the issue of the Defects Certificate. If he fails to do so, the Contractor may issue its own. That assessment will be conclusive after 4 weeks, unless challenged by referral to dispute resolution. In addition, under the ‘cost plus’ options, the contractor may notify the Project Manager that part of its Defined Cost is ready for review. The Project Manager must review within 13 weeks and if he fails to do so, the Defined Cost as submitted by the Contractor is treated as accepted.

Payment provisions. A curious amendment which now requires the Contractor to make an application for payment as a condition precedent to payment in a particular period.

Undertakings to others (collateral warranties). A new secondary clause is introduced to allow easy inclusion of the requirement for collateral warranties.

Early Contractor Involvement. Another new secondary option clause for a method of appointing a Contractor early and first proposed by NEC in 2015. Early appointment of a Contractor will assist streamlining the design, reducing problems and encouraging collaboration.

Quality Management. The new contract requires the Contractor to produce a quality management system.

Bribery and Corruption, Confidentiality and Publicity, Transfer of benefits. New core clauses to deal with matters which were previously included as Z clauses. It is unclear how successful this will be as each Client will have its own particular requirements.

Additional compensation events. A new event has been included where the Project Manager notifies the Contractor that a proposed instruction is not accepted, allowing the Contractor to recover the cost of preparing the quotation. How that will work in practice is difficult to understand given that a Contractor will incur the cost of a quantity surveyor whether he is preparing quotations or not. Further compensation events can now be included in the Contract Data. This used to be the case in the original NEC3 but was removed in the June 2006 amendments. It is good to see it back.

There are other significant changes

Terminology has generally been changed. The Employer is now the Client, Scope has replaced terms such as Works Information, Service Information and Goods Information. The suite of contracts are gender neutral, using ‘it’ instead of ‘him’. The Risk Register is now the Early Warning Register, presumably opening the door for opportunities as well as risks. Section 8 is retitled Liabilities and Insurances to separate it from risk and secondary options X4 and X12 have been renamed Ultimate Holding Company and Multi Party Collaboration.

The Schedule of Cost Components has undergone some change. The Shorter Schedule has been removed from options C, D and E and Subcontractor costs have been moved to the SCC. Working Area overheads and People overheads are removed and the relevant costs are instead paid as Defined Costs. Similarly, design overheads has been removed. The rules for people have been amended to encompass their cost wherever they may be working. The subcontract fee percentage and direct fee percentage have been combined into one single fee. There is no doubt that this will simplify the assessment of Defined Cost, but it is unclear whether the amendments go far enough.

Programme. A welcome addition here is that a programme can be treated as accepted if the Project Manager fails to respond. In addition, the requirement to show ‘implemented compensation events’ has been removed as it caused confusion as to whether unimplemented compensation event should be shown or not.

Compensation event process has been simplified in the Short Contracts. It is a shame that the process has not also been simplified in the other contracts.

Contract Data has been made simpler and easier to navigate and produce by computer.

Finally, the Guidance Notes have been updated.

Whilst there seem to be many welcome changes, it remains to be seen whether these will have a significant impact upon the effective use of the contract and whether some of the drafting problems have been addressed.

For advice and training, please contact us. It is likely that demand will be high as professionals seek to remain at the cutting edge, so early booking is recommended.

Any comments regarding the above can be directed to Steven Evans at steven.evans@cmcasiapacific.com.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.

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