REUTERS | Yves Herman

What to expect from NEC4

The NEC4 suite of contracts is being published in June 2017 and is already available to pre-order. That doesn’t leave much time for practitioners to prepare, so what do we know about this new raft of contracts? 

The first impression is comforting. Although it is 12 years since the NEC3 suite first appeared, the NEC is at pains to underline that its new contracts represent an “evolution, not a revolution”. The overall NEC philosophy remains, with only minor tweaks. The famous duty to act in a “spirit of mutual trust and co-operation” retains pride of place, although clause 10.1 looks very slightly different. Likewise, the active, direct style of language remains, although it is now also gender-neutral.

In line with its “evolution, not revolution” mantra, the NEC has promised ongoing support for NEC3 users, so there is no need for panic if you are in the middle of an NEC3 procurement. However, the NEC is keen on making the transition to NEC4 as easy as possible. Immediate support includes a number of online seminars and other training sessions. Most importantly, the NEC4 suite will be accompanied by guidance notes and flow charts, just like its predecessor.

All this means that you should find the NEC4 contracts reassuringly familiar. Indeed, the NEC was hardly likely to make wholesale changes to a suite whose market share has grown so significantly over the past twenty years. That said, there are plenty of new features to consider, in the form of new contracts and new clauses.

New contracts

The NEC4 suite retains all the NEC3 contracts, although the NEC3 Adjudicator’s Contract is renamed the Dispute Resolution Service Contract (DRSC), because it now caters for a dispute avoidance board (DAB).

Most importantly, there are two new forms of contract:

  • Design, Build and Operate Contract (DBO), which covers design, build, operation and/or maintenance from a single supplier. The maintenance element allows it to cover straightforward facilities management (FM) services.
  • Alliance Contract (ALC), which is being published in a consultation format (the NEC envisages a six-month consultation period). Unlike other NEC contracts, the ALC is not bi-party. It is a single, multi-party contract based around integrated risk and reward sharing. The NEC states that it is suited to large, complex projects, but practitioners may also consider using it for a programme of smaller projects.

New features

Detailed drafting is yet to be made public, but we know that the NEC4’s new features include:

  • Information modelling. This is a secondary option that builds on the NEC’s previous publications dealing with building information modelling (BIM). It addresses model ownership and liability issues, but the client must specify precisely what it wants in the model. Most parties will be comfortable with this, as existing BIM protocols can be used for that task.
  • Design and build obligations. This is a secondary option for the Engineering and Construction Contract (ECC) and Engineering and Construction Subcontract (ECS). It addresses most of the basic issues that arise in a design and build project, such as professional indemnity insurance and copyright licences. Most importantly, it aligns the ECC and Professional Services Contract (PSC) better than NEC3, recognising that the contractor may well sub-contract its design obligations using the PSC.
  • Finality of assessments. The NEC4 suite tries to improve the assessment process in two ways. First, it sets out a process for parties to agree the value of defined costs during the project. Under the cost-based contracts (options C, D and E) the contractor can instigate a review, with the project manager having to make an assessment. Second, it provides for the project manager to issue a final assessment of payment due to the contractor within four weeks of the defects certificate. That assessment becomes final and binding unless challenged within a specified period.
  • Consensual dispute resolution. NEC4 introduces a four-week period for escalating and negotiating disputes prior to formal proceedings. This process is mandatory under option W1 (if the Construction Act 1996 doesn’t apply), but consensual for option W2 (which preserves the parties’ right to adjudicate at any time if the Construction Act 1996 applies).
  • Dispute avoidance board. This is a secondary option that can only be used if the Construction Act 1996 doesn’t apply. It effectively replaces adjudication as the first step of the dispute resolution process. Where used, the DAB gives a non-binding recommendation. It reflects the current trend across the industry to pro-actively address and try and dispose of issues or problems before they turn into a full-blown dispute.

In addition, the NEC has recognised the ubiquity of some commonly-used additional conditions of contract (often known as Z clauses), by including them in the NEC4 suite. Such provisions cater for:

  • Collateral warranties (called “undertakings to others”).
  • Anti-bribery and corruption requirements.
  • Contractor’s proposals during the project, with a core clause for value engineering and an optional provision looking at the whole life cost of a project (although putting a value on the latter may prove tricky in practice).
  • Confidentiality and publicity.
  • Assignment (called “transfer of benefit”).
  • Quality management, although the parties are left to decide what the relevant standards will be.

The verdict

The NEC’s decision to make relatively modest changes to its suite of contracts is understandable. Each new feature is intended to address the various different issues that were raised by users of the NEC3 suite and, as such, are welcome improvements on its predecessor. If there is any criticism it is likely to come from experienced users who wanted the changes introduced by NEC4 to go further. For example, more optional clauses to cater for situations that arise repeatedly. This doesn’t mean that users will not embrace the NEC4 suite, but bespoke Z clauses will remain a fact of life.

Practical Law Yassir Mahmood

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