We are often asked when to use the JCT v NEC suite of contracts. In this article, we examine some of the main differences between the key JCT and NEC4 contracts. Generally, NEC contracts are aimed at engineering projects but are easily adapted to building works. JCT contracts are aimed at building works rather than engineering projects but again can be adapted for both.

JCT contracts are considered by the majority of the UK construction industry to be a market standard for building projects and therein lies one of the main challenges to using the NEC forms, people are more familiar with the JCT forms. Whilst NEC contracts are drafted using plain English that can be easily understood, there is still a reluctance amongst those who are familiar with the JCT to switch.

In RIBA Construction Contracts and Law Report 2022, published earlier this year, 71% of those surveyed reported using JCT contracts during the past 12 months, in contrast to 31% reported using NEC contracts.

What is a JCT Contract?

The Joint Contracts Tribunal (JCT) was established in 1931:

  • Purpose: standardise forms of procurement for the British construction industry and can be seen as the standard ‘traditional’ contract for the UK.
  • Procurement routes covered: Designed to cover the many types of procurement options, for each type – traditional, design and build, minor works, management contracting, construction management etc, the JCT offer ‘suites’ of standard forms that operate together (although often with amendments in practice).
  • Latest editions: 2016 Edition.
  • Approach: The main feature of the JCT is the way their suites focus on allocating risk and assessing compensation without ‘hands-on’ conflict management procedures.

What is a NEC Contract?

The New Engineering Contract (NEC) was established in 1991:

  • Purpose: as a response to perceived shortcomings in the prominent contract suites at the time (including the JCT).
  • Procurement routes covered: Like the JCT, the NEC library has many suites of contract to facilitate different types of procurement. However, unlike the JCT, the NEC was drafted for use internationally (not just the UK).
  • Latest editions: The latest version is known as ‘NEC4’ and was published in 2017 (with supplements later issued).
  • Approach: The intention behind the NEC suite of contracts is to require a more collaborative approach between contractor and employer in resolving any cost, quality or time issues. Use of the NEC is more prominent in international projects and complex engineering contracts where each party has the resources to be proactive in the contract’s management throughout the project’s life but the domestic UK popularity of NEC is increasing.NEC is now a common feature of the UK’s utilities, transport, healthcare and local authority sectors, reportedly endorsed by the Construction Clients’ Board (formerly Public Sector Construction Client’s Forum)i.

What’s the difference between NEC and JCT contracts?

There are several key differences between the JCT and NEC contracts. Traditionally JCT’s approach has been seen as encouraging a more adversarial approach to contract management, with the exception of its Constructing Excellence Contract.

The NEC seeks to encourage a more collaborative approach to managing the contract. Indeed, at the heart of the NEC suite of contracts is an express obligation for the parties and, taking the NEC4 Engineering and Construction Contract as an example, the Project Manager (PM) and Supervisor to:

‘act in a spirit of mutual trust and co-operation’

What does this mean in practice? Case law on the meaning of these types of obligation is limited but perhaps not as far reaching as the NEC hopes (i.e. to apply to all of the contractual obligations). In Costain v Tarmac , the court held that the ‘mutual trust and cooperation’ duty meant that a party cannot say or do something which lulls the other into falsely believing that a contractual time bar was either non-operative or could not be relied on.

The two types of contract also adopt a fundamentally difference approach to risk allocation and management.

  • The NEC’s philosophy is that, by working together to anticipate and plan for the eventualities that can arise on a construction project, the impact of risks is likely to be reduced, leading to a better outcome for all parties. Its focus being on strong project management tools to promote best practice in procuring works.For example, the NEC therefore includes a process of early warning.
    • An ‘Early Warning Register’ is prepared by the PM at the beginning of the project, identifying potential risks and how those risks will be avoided or reduced, including any identified by the Contractor in the Contract Data. Note that this register is not intended to allocate liability for risks.
    • The Early Warning Register is then updated by the PM throughout the project.
    • The PM and Contractor must notify the other if either becomes aware of a matter which may impact the cost, programme or performance of the works.
    • A meeting is then held to discuss what action to take and the Early Warning Register is updated and re-issued.
  • Contrast with the JCT, which seeks to allocate all risks between the Employer and Contractor at the point of entering into the contract. Though there is no equivalent risk management process built into the contract, the Contractor is required to constantly use best endeavours to prevent delay to the works.In terms of adaptability to meet the needs of the project:
  • The structure of the NEC contracts is designed for flexibility. Most NEC contacts contain ‘core’ clauses but with a range of optional clauses to allow the parties to adapt the contract for their particular requirements. In addition, there is the option to include entire bespoke Z clauses.For example, in the NEC4 Engineering and Construction Contract, additional compensation events can be stated in the Contract Data, Part One offering a far more accessible way of adapting a contract to address risks not covered by the standard terms.
  • The JCT contracts do not offer the same level of flexibility.

We have detailed some further key differences in the table below, focussing on features in some of the main contracts in the JCT and NEC suite e.g. the JCT Design and Build Contract, the JCT Standard Building Contract and the NEC4 Engineering and Construction Contract (ECC). Note: Not all contracts in the suites of contracts have each of the features detailed below.

 

When would you use a NEC contract?

NEC contracts are flexible and can be easily adapted to suit difference methods of procurement and different pricing structures and they are designed for use domestically in the UK and abroad.

A good example of how the NEC works well, particularly for public bodies procuring works on frameworks, with the need for inbuilt flexibility, is the MoD’s £1.3 billion refit of its nuclear submarine base on the Clyde estuary in Scotland. In that case, the MoD is reportedly using an NEC4 based framework (awarding 10 year framework contracts in May 2018 to 3 contractors), with work packages to be awarded by direct award or competitive tender on a target cost basis (ECC Option C) but with flexibility to instead use the ECC Option A (Priced Contract with Activity Schedule) or ECC Option E (cost reimbursable) or, for smaller works, the shorter Engineering and Construction Short Contract.

Another key feature of the NEC contracts is the emphasis on collaboration and best practice project management. The Defence Infrastructure Organisation responsible for the refit stated that a key objective of the framework was to encourage a more collaborative approach to working in such a high security, highly regulated and highly congested operational environment.

When the project team needs to work collaboratively, undertaking optioneering to find process solutions which both achieve the Client’s requirements on performance and budgetary constraints, the NEC contracts have the project management tools to drive the right behaviours.

This is a good example of how the NEC contracts lend themselves well to larger, more complex projects particularly in the engineering/infrastructure sector.

When would you use a JCT contract?

JCT contracts are preferred by employers who want to retain a greater level of control over the project delivery and are generally favoured by domestic commercial developers and their funders.

JCT remains the most popular form of contract for projects in the UK but with the NEC being widely endorsed by a number of government bodies and organisations around the world, its use is increasingly more common.