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'Evolutionary' NEC4 construction contracts now available for use

An "evolutionary" new suite of the standard form New Engineering Contract (NEC), NEC4, is now available for use by the industry, signalling a more collaborative approach to the delivery of major construction projects23 Jun 2017

NEC4 incorporates updated versions of the contracts that made up the previous suite, NEC3. It also introduces two new contracts in response to industry feedback: an NEC4 Alliance Contract (ALC), which will be published for consultation shortly; and an NEC4 Design, Build and Operate contract (DBO), which is now available for use, as well as two new subcontract forms.

Construction law experts Shy Jackson and Stephen Ovenden of Pinsent Masons, the law firm behind Out-Law.com, said that the new contracts would improve communications between parties to consultation contracts as well as potentially cutting down the use of bespoke 'z clauses' at the contracting stage.

"Designed to provide a standard form of contract for use across all types of construction, engineering and related activities, NEC4 is a refinement and evolution of the earlier and widely used NEC3," said Ovenden. "The NEC ethos is unchanged - the contracts being intended to be a stimulus to good project management, but with increased clarity and simplicity."

"The amendments behind NEC4 were driven by users' feedback and they reflect a desire for parties to take a more proactive role and to improve communications," said Jackson. "This is especially the case for the time and money provisions and, for example, the amended clause 13.4 which requires a project manager, when not accepting communications, to provide reasons with sufficient details for the contractor to correct the matter. It is to be hoped that these provisions will be adopted as intended and will not be the subject of further amendments and 'z clauses'."

NEC is a suite of standard form construction contracts created by the Institution of Civil Engineers (ICE). There have been three previous versions of the suite: in 1993, 1995 and NEC3 in 2005. NEC is the contract of choice for many of the UK government's procurement projects, including 2012 Olympics-related projects and Crossrail. It is also increasingly being used in IT procurement, as well as infrastructure; and being used internationally.

The new NEC4 contracts incorporate additional core clauses covering topics such as confidentiality, assignment, anti-bribery and additional compensation events. New standard 'secondary' options have also been developed, including early contractor involvement and the use of new technologies such as building information modelling (BIM); and an option to incorporate collateral warranties.

An additional dispute avoidance procedure based on senor representatives meetings has been introduced. This will allow parties to refer disputes to a pre-appointed Dispute Avoidance Board (DAB) if the adjudication provisions of the UK's Housing Grants, Regeneration and Construction Act do not apply.

The contracts adopt terminology changes, such as replacing the term "employer" with "client" and simplifying and making more consistent the way in which 'scope of works' documents are labelled. They include a new approach to finalising assessments of value and agreeing 'defined cost' as the works progress, as well as a final assessment process. There is also now a provision which can lead to deemed acceptance of a programme if the project manager does not deal promptly and properly with its submission.

The new NEC4 DBO contract will allow parties to include a range of different services to be provided before, during and after engineering and construction works are completed. DBO contracts are used where responsibility for the design, construction and operation or maintenance of a project is procured from a single supplier. The NEC4 ALC is the first multi-party NEC contract created to support clients who wish to fully integrate the delivery team for large, complex projects where risk and reward is shared. Interested parties can now sign up to receive the consultative version of the contract once available.

"The new alliance contract is perhaps the most radical change for NEC, because it introduces multi-party contracting to the suite for the first time," said Stephen Ovenden. "The ethos is around incentivising and rewarding project participants by reference to the success or failure of the project as a whole, rather than individual performance."

"The consultative version of the alliance contract has generated a lot of interest among NEC users, who are asked to provide feedback on the draft. Particularly interesting is the 'no blame culture' model of the draft and the lack of any formal dispute resolution procedure, which is aiming to encourage the parties to resolve any issues among themselves," he said.

Shy Jackson said that the new versions of the contracts had been developed specifically to encourage international use.

"NEC4 has been recommended by the Development Bureau, part of the government in Hong Kong; which reflects the growing use of NEC internationally, especially in jurisdictions such as Hong Kong and South Africa," he said.

"The preface to NEC4 by Peter Higgins, chair of the NEC4 Contract Board, confirms that one of the three key objectives of NEC4 was to 'inspire increased use of NEC in new markets and sectors'. Introducing Dispute Avoidance Boards under the new option W3, and the new DBO contract, will help with that objective," he said.

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