Introduction

Matthew Garratt, of the NEC Contract Board announced at the Society of Construction Law conference on 3 March that the new suite of NEC contracts will launch this year.

The NEC4 suite will replace the NEC3, which has been in place since 2005, on 22 June 2017 and introduces two entirely new forms of contract.

Of particular note, the NEC4 Engineering and Construction Contracts will now include enhanced options for design and build procurement.

While we will have to wait until after 22 June 2017 to report in full on the contents of NEC4, some of the key changes promised by the drafters are summarised below.

New Features

The publishers have announced that the NEC4 will include the following new features when compared to the NEC3:

  • Contractor’s design (design and build) option

Engineering and Construction Contracts will now include a secondary option with more extensive provisions for design and build contracting. This will deal with requirements for contractors to provide professional indemnity insurance, standards of skill and care and intellectual property licences that users have previously had to incorporate through the Z Clauses.

  • Contractor’s proposals

Mechanisms for the contractor to propose changes to the Scope to reduce costs (of the development itself or over the whole life of the asset) and accelerations to achieve early delivery have been added.

  • Defined Cost

The NEC4 Professional Services, Term Service and Supply Contracts will now use Defined Cost, as previously used in the Engineering and Construction Contract.

  • Dispute resolution

NEC4 will introduce a four week period for escalation and negotiation of disputes ahead of any formal proceedings. For projects where the Construction Act does not apply (i.e. projects outside the UK), there will also be an option to refer disputes to a dispute avoidance board.

  • Finality of assessments

The NEC4 cost based contracts will include various procedures for conclusively determining the final amounts due under the contract.

  • Payment Provisions

Under the NEC4, contractors will be required to make applications for payment where periodic assessment is used.

  • Collateral Warranties

The NEC4 contracts will include a secondary option to allow for collateral warranties to third parties from contractors and sub-contractors.

  • Early Contractor Involvement

Engineering and Construction Contract will include a secondary option for early contractor involvement, which anticipates appointing a contractor at an early stage and involving the contractor in the early design of the development.

  • Bribery and corruption

A core clause prohibiting corrupt acts, with termination as a remedy will be introduced.

  • Confidentiality and publicity

The NEC4 contracts (except short ones) will include core clauses which restrict the disclosure of project information.

  • Assignment

The NEC4 contracts will introduce a core clause allowing either party to assign the benefit.

  • Additional compensation events

The NEC4 contracts will be drafted so as to allow the parties to easily incorporate additional compensation events.

  • Other changes

A number of other changes will be introduced, including adjustments to the defined terms and conditions (notably replacing the “Employer” with “Client” and adjustments to the Schedules of Cost Components and Fees).

NEC4 Design Build Operate Contract

The new suite will introduce the new NEC4 Design Build Operate Contract (DBO) that, it is claimed, will allow clients to “procure a more integrated whole-life delivery solution”.

The DBO contract will wrap responsibility for design, construction, operation and/or maintenance of a project into one contract with a single supplier.

It would appear that the DBO contract will be a versatile document. The publishers promise that the DBO contract can “include a range of different services to be provided before, during and after engineering and construction works are completed”. The DBO contract will allow clients to include requirements that the operation of an asset must achieve strict performance levels, straightforward facilities management, or a combination of the two. The DBO contract does not contain the provisions necessary for design-build-finance-operate projects.

The Alliance Contract

The second new contract to be introduced will be the NEC4 Alliance Contract (ALC). The ALC is intended for use in large, complex projects.

The ALC will be unique in the NEC suite, being designed to be a multi-party contract intended to provide for collaborative project delivery with an integrated risk and reward model, where all stakeholders take part in pain and gain share.

When the NEC4 launches, the ALC will be published in a consultation form, so may be subject to further revision after the market has been given the opportunity to scrutinise the document.

Conclusion

With the NEC4, the publishers are promising to make changes to bring the suite of contracts in line with common market practice. Notably, the Engineering and Construction Contracts will incorporate optional provisions to reflect the common requirements of design and build procurement and the introduction of optional clauses allowing for market-standard assignment provisions and the use of collateral warranties.

NEC4 also introduces changes to reflect legal and commercial advancement since the NEC3 was introduced 12 years ago, addressing BIM and bribery and corruption.

At the time of publishing this update, the NEC4 has not been made available to the public. We will follow up with more on the NEC4 in the next issue of Under Construction and elsewhere.