Introduction

The new suite of NEC4 contracts were published on 22 June 2017. It had been promised that these amendments would be an "evolution not revolution" aimed at reducing the amount of necessary Z clauses to streamline the contractual process. This article sets out what you need to know about the changes and how to negotiate and operate under NEC4.

NEC4 - the new forms of contract

NEC4 includes the following new forms of contract:

  1. Design, Build and Operate ("DBO"). This was created in response to demands for an integrated "whole-life" delivery solution. It combines the responsibilities for design, construction, operation and/or maintenance, which can be procured from a single supplier.

  2. Professional Service Sub-Contract. This is a useful addition to the PSC bundle which is likely to be used on more complex services procurement where sub-consultancy arrangements are important.

  3. New Term Service Sub-Contract. As above, a useful addition for more complex projects.

There is also a consultation taking place in relation to a new form of Alliance Contract. This is intended to respond to the increased demand for a fully integrated multi-party delivery on large complex projects, thus removing the need for X12 amendments to existing bi-party contracts. It contains an integrated risk / reward model which will no doubt need to be adapted to suit individual needs.

NEC4 - the key changes

The main changes that you need to know to operate under NEC4 are as follows:

The core clauses

  1. Value Engineering. There is a new process for "Contractor's Proposals" (Clause 16) which enable the Contractor to propose a change to the Scope and reduce cost.

  2. Programme. The Contractor's programme will now be treated as "accepted" if the Project Manager does not respond within the required time limited (Clause 31.3).

  3. Quality Management. Section 4 has been re-titled "Quality Management" and now requires the Contractor to prepare a quality management system in line with the Scope (Clause 40).

  4. Interim Payment. The Contractor is now required to make an application for an interim assessment (Clause 50.2). If it does not do so, it will not be entitled to any additional payment, although the Project Manager can still certify sums back to the Client (Clause 50.4)

  5. Final Assessment. There is now provision for a Final Assessment process (Clause 53) which requires the Project Manager to issue an assessment within four weeks of the issue of the Defects Certificate. If it fails to do so, the Contractor can issue an assessment. The Final Assessment is conclusive and binding unless challenged within four weeks; as is familiar in other standard form contracts.

  6. Assessments. For contracts with a Defined Cost (i.e. Options C – F) the Contractor can also require an assessment of the Defined Cost by the Project Manager. If the Project Manager does not respond within the required timescale (13 weeks), the Contractor's Defined Costs and Disallowed Costs are treated as accepted.

  7. Compensation Events. There is now the option to include bespoke Compensation Event's within the Contract Data together with a new Compensation Event to compensate the Contractor for preparing quotations which are not accepted / instructed.

  8. Liabilities and Insurance. Clause 81.1 now sets out the Contractor's liabilities expressly (as opposed to by exception to the Employer's risks). The waiver of subrogation in Clause 84.2 has also been clarified to extend to all parties (not just directors / employees).

There are also new clauses to deal with bribery and corruption (Clause 18), confidentiality and publicity (Clause 29) and assignment (Clause 28).

The main options:

  • Dispute Resolution. There is a new tiered process to encourage negotiated settlement of disputes. This includes a four week period in which the dispute is referred to senior representatives for resolution and a compulsory meeting prior to formal proceedings. This is consensual where option W2 applies (i.e. to preserve the right to adjudicate "at any time" under the Construction Act) and mandatory where option W1 is incorporated.

  • Dispute Resolution Board. Option W3 is a new dispute resolution option which provides for reference to a Dispute Avoidance Board which will make recommendations. It cannot be used if the Construction Act applies because it does not include a right to adjudicate "at any time"

The secondary options:

  • Undertakings to Others. Option X8 provides for collateral warranties to be provided; which avoids the need for an additional Z clause.

  • BIM. Option X10 provides a useful starting point for dealing with BIM, although it is likely to require bespoke amendment to suit project requirements.

  • Termination. The Client's ability to terminate at will is no longer automatic and is now included as Option X11.

  • Contractor's Design. Option X15 has been expanded to provide more comprehensive provisions to deal with standard design and build issues, which were previously added by way of an additional Z clause.

  • Whole Life Cost. Option X21 which allows the Contractor to propose a change to the Scope which would reduce the cost of operating and maintaining an asset over its whole life.

  • Early Contractor Involvement. Option X22 allows the Contractor to be appointed at an early stage to participate in the development of the design (similar to a PCSA).

NEC4 - the changes in language

Whilst the format of NEC4 remains the same, there are a few changes to the terminology and definitions used which need to be noted:

  1. The "Works Information" is now the "Scope".

  2. The "Employer" is now the "Client"

  3. The "Risk Register" is now the "Early Warning Register"

  4. Secondary Option X12 "Partnering" is now re-named "Multi Party Collaboration"

  5. The entire suite of contracts is now gender neutral

Conclusion

The amendments are most definitely "evolution not revolution". Whilst the substantive changes are minimal, the new forms now incorporate a number of clauses which previously had to be included as additional Z clauses, which is a welcome update. It is anticipated, however, that parties will still want to make bespoke amendments to strengthen their position and ensure that their individual contract is fit for purpose.