On 3 March NEC announced that on 22 June 2017 it would be releasing NEC4 – the next generation in NEC contracts. The NEC Contract Board describes the change as “evolution not revolution”, with the new suite of contracts aiming to ‘meet new market demand’ and ‘the expectation of future users’.
Whilst we will have to wait until 22 June for this next step in the NEC journey, more details of what is to come have recently been revealed by the NEC4 Contract Board. The Board have provided more information about some of the new features of the contracts, and in particular has shed some light on the two new contracts being introduced:
- NEC4 Design, Build and Operate Contract (DBO); and
- NEC4 Alliance Contract (ALC).
The Two New Contracts
We are told that NEC4 DBO combines responsibility for usually disparate functions such as design, construction, operation and maintenance, with a view to allow procurement from a single supplier and providing integrated project solutions on large complex projects. Given that a limited number of companies currently provide design, construction, operation and maintenance through one entity, it is hard to tell how much use will be made of this new contract at this stage.
NEC4 ALC is perhaps then the more radical of the two. It aims to move away from traditional risk allocation under construction contracts, where emphasis is placed on the consequences of failing to meet a set project completion date, and instead NEC ALC is billed as being for ‘all parties to work together in achieving Client objectives, and sharing in the risk and benefits of doing so’.
The New NEC4 ALC will therefore be incentive based, encouraging parties to work together as a team with a view to promoting co-operation and reducing the costs and inefficiency that can sometimes arise from risk based disputes.
Whether such a shift in approach will be welcomed by the industry remains to be seen – NEC will certainly need to persuade parties that any savings that can be made, justify not having the comfort of the traditional risk transfer provisions. Perhaps this is one area of the NEC4 where the drafters are toeing the line between revolution and evolution.
Nevertheless, those with a sound strategic procurement analysis; a good understanding of the commercial objectives of the project and a strong working relationship with all parties, may welcome the change; seeing it as an opportunity to move away from the risk based dispute process which often runs in parallel to a project, where disputes arise out of the financial significance of key dates and instead replace this with a more holistic co-operation based approach.
General New Features:
Alongside these two new contracts, more information has been provided about some of the new features of the NEC4 suite of contract more generally, of particular interest are:
- New Contractor’s design and build option: this new secondary option for the ECC and ECS is said to align the Contractor’s design duty with the industry standard for designers, encouraging the Contractor to provide professional indemnity insurance and with options surrounding intellectual property ownership and licenses to use materials.
- New finality of assessments in relation to payment: this introduces new procedures to reach agreement on the final amounts due under the contract, with a view to providing ‘commercial closure’. It will mainly be of use in relation to the cost based contract (main options C, D and E) and the Contractor will be able to instigate a review and acceptance of its Defined Costs as the work proceeds. The Project Manager will then issue a final assessment of payments due to the Contractor within 4 weeks of the Defects Certificate.
- New consensual dispute resolution: this will allow senior representatives of each party to meet and discuss with a view to resolving the dispute consensually. The suggestion is it will be mandatory where option W1 applies and consensual under W2, that is to say where HGCRA 1996 applies.
- New Dispute Avoidance Board (DAB) Options: complementing the new consensual dispute resolution procedure is the Dispute Avoidance option. The aim being that the members of the Board will become familiar with the project and can provide recommendations in relation to disputes. These recommendations are not binding however, and parties will need to weigh up the obvious benefit of parties familiar with the project, against the costs of making them so in terms of the DAB member’s fee over the course of the Project.
Overall, many of the new features under the NEC4 are optional and along with the two new contract the NEC Board are quick to reassure that the ‘transition should be easy as NEC4 follows on from NEC3 and is not a new contract suite’. Whilst it may follow on chronologically the move away from traditional risk allocation and towards a more consensual approach may take the industry some getting used to.