NEC4: A brave new(ish) world

10 Jul 2017

The new suite of NEC contracts – NEC4 - were published on 22 June 2017. So has much changed from the NEC3 contracts that you know and love, and should you rush out and buy the new set?

'Evolution not Revolution'

Fundamentally, the contracts have not changed:

  • The entire suite has been retained with the same names. The only exception is the Adjudicator's Contract, which is now the "Dispute Resolution Service Contract"
  • Options A-F have all been retained, with the same functions
  • The basic structure of Core Clauses, Main Option Clauses, Secondary Option Clauses (W, X and Y Clauses), Cost Components, Contract Data parts 1 and 2, and additional clauses (Z clauses) has been retained
  • The language is generally the same, written in the present tense
  • The key clauses are in the same place, following the same order, and generally have the same effect.

Key changes

However, there are of course some changes. NEC's criteria for changes were to:

  • Support the changing requirements of users
  • Stimulate good project management
  • Improve clarity and simplicity.

The NEC explains the changes and the reasons for them in its White Paper, which can be found on its website.

We have set out below the key changes to the ECC which users of the NEC3 should be aware of, if they decide to move to NEC4:

New forms
  • New DBO (Design, Build and Operate) contract – we assume that this is aimed more at the international market where DBO contracts are more common. Here in the UK, a DBO contract is more likely to come under the auspices of a government form of contract
  • New Professional Services Subcontract – this is a welcome gap-filler particularly for more complex services procurement such as EPCM, where sub consultancy arrangements are important
  • New Term Service Subcontract – again a welcome gap filler
  • New Alliance contract has been published in draft for consultation – this is a 'pure' alliance contract along the Australian model deployed by Network Rail amongst others. We will be responding to the consultation and sharing our views.
Terminology
  • "Works Information" is now the "Scope". This is a helpful alignment with industry terminology
  • The "Employer" is now the "Client" – we are not sure why this was done. The term 'Employer' is now well recognised in construction contracts to mean the purchaser. The FIDIC and JCT forms used the same word. Time to "find and replace" your Z clauses
  • The "Risk Register" is now the "Early Warning Register" - this is useful, because it more closely describes its function in the contract
  • The entire contracts are now gender neutral, with all references to "he" or "his" removed, and replaced with "it" or "its". This follows a general trend in the industry. It will have no practical difference in using the contracts, but users of the NEC3 will notice the difference and Z clauses should be updated in order to be consistent.
New clauses
  • Clause 16 - Contractor's Proposals: This essentially formalises a value engineering process
  • Clauses 28 and 29 - assignment and disclosure: These are welcome additions, as parties almost universally had to include these provisions in Z clauses
  • Clause X10 – Information Modelling: This is a welcome addition and attempts to deal with BIM. Parties may well still wish to amend this clause further, however it provides a useful starting point
  • Clause X15 – Contractor's design: although all NEC3 contracts could be used for design and build projects if desired (through clause 21 and design elements in the Works Information) additional Z clauses also often had to be used. This new specific option is a welcome addition, designed to remove the need for such Z clauses and deal with the main design and build issues, such as the requirement for PI insurance and limiting the contractor's design to reasonable skill and care
  • Clause X21 – whole life cost: This allows a value engineering process specifically relating to the operation and maintenance costs
  • Clause X22 – Early Contract Involvement: Although technically a new clause, this in fact just incorporates clauses which NEC had published in November 2015 for use with NEC3 contracts
  • Clause X23 - Extending the service period: This is in the Term Service Contract (not the ECC) however it is worth mentioning as it is a very welcome addition in providing a mechanism for extending the Service Period, which the NEC3 did not provide
  • Option W3 - "Dispute Avoidance Board": This is an additional dispute resolution mechanism, which can be used when statutory adjudication is not implied. This is again welcome additional flexibility, especially for international projects and those where the parties do not want to use adjudication  
  • Options X8 (undertakings to the client or others), X9 (transfer of rights) and X11 (termination by the client) were all previously included in just the Professional Services Contract but have now been included in all the forms.
Other key changes
  • Partnering (X12): This is now "Multiparty collaboration". The wording in the clause has also been changed but fundamentally the function remains the same
  • Defects (Section 4): This is now "Quality Management", rather than "Defects". It also has an additional requirement for the Contractor to operate a quality management system, the requirements for which should be set out in the Scope
  • Payment (Section 5): The contractor is now required to make an application for an interim assessment. There is also a Final Assessment process. This brings the NEC into line with other standard form contracts, particularly JCT, and is very welcome. Those used to administering NEC3 should however note this change and update procedures appropriately
  • Compensation Events (Section 6): The list of Compensation Events expressly provides for additional Compensation Events to be included in the Contract Data. These were normally provided for by additional Z clauses and therefore this is another welcome addition in reducing the number of amendments required. There is also a specific compensation event which allows the contractor to recover the cost of preparing a quotation where the quotation is not accepted. Again, this is a sensible addition however it is a significant change and the Client should therefore be aware of its potential additional liabilities when it proposes instructions.

So, should you rush out to buy NEC4? The NEC have not yet indicated that they will withdraw the NEC3 contracts and so they will continue to be supported for the foreseeable future. The NEC3 therefore remain usable and we suspect parties will continue to use them for the moment, potentially using the NEC4 as a basis for additional Z clauses – especially as many of the changes in NEC4 are to reflect amendments that parties currently make through Z clauses.

However, as the changes are not fundamental, there is no doubt there will be a general shift towards NEC4, as there was from NEC2 to NEC3, and parties should start preparing for using NEC4.