During the construction boom in 2007, leading UAE developer Aldar Properties took the pioneering step of adopting the third generation of the New Engineering Contract, the NEC3, to procure the development of the vast mixed-use waterfront development at Al Raha Beach in Abu Dhabi. It was believed to be the first time an NEC contract had been used anywhere in the Middle East and is still one of the largest single contracts ever let in the Emirates.
Despite this, the NEC suite has struggled to gain traction in the GCC due to the historical prevalence in the region of the FIDIC forms of contract since the oil boom in the 1970s.
Will the newly released NEC4 suite of contracts be more widely received in the GCC construction markets? Let us look at some of the key features of the NEC4 suite.
Two brand new contracts have been added to the suite – the NEC4 Design, Build and Operate Contract (DBO) and the consultative NEC4 Alliance Contract (ALC). The DBO is aimed at clients who wish to procure design, construction, operation and/or maintenance from a single contractor. It can include a range of different services to be provided before, during and after the construction works are completed, such as operation of the asset and more straightforward facilities management.
The ALC is a revolutionary multi-party contract based upon an integrated risk and reward model. It suits clients who wish to enter into a single collaborative contract with a number of participants. The potential benefit of using this contract is a much deeper collaboration between all project participants, bound by common interests and reduced grounds for dispute.
Key features of the NEC4 suite include:
- Changes in terminology (e.g. the term "Employer" replaced with the term "Client", "Risk Register" replaced with "Early Warning Register" and "Works Information", "Service Information" and "Goods Information" all becoming the "Scope").
- A secondary option clause for early contractor involvement (ECI) in the NEC4 Engineering and Construction Contract. ECI is a procurement method which involves the Contractor’s input to the design at an early stage, allowing for innovation and cost savings.
- Periodic assessments that require an application by the Contractor – if no application is made by the assessment date, the Contractor will not receive payment.
- A mechanism where the Contractor as well as the Project Manager can propose positive changes such as acceleration or a change to the Scope to improve the outcome of the project.
- A Building Information Modelling (BIM) option to support the management of Information Model Requirements and deal with issues such as who owns the information and liability.
- A four-week period for escalating and negotiating disputes prior to formal proceedings.
- A new "Option W3" that replaces adjudication proceedings and introduces a Dispute Avoidance Board (DAB), similar to a DAB under the FIDIC suite of contracts. The DAB's decisions are not binding and only if dissatisfied with the DAB's finding can the dissatisfied party refer the dispute to the arbitration tribunal.
- New clauses relating to bribery and corruption including a right to terminate.
- New clauses relating to confidentiality and publicity, such as a restriction on the disclosure of project information.
- New clauses covering the transfer of benefits i.e. the assignment of rights under the contract.
How will the NEC4 be received in the GCC?
The NEC4 is likely to be a popular form of contract in the UK given the success of its predecessor. The challenge however is to become routinely considered for construction projects in the GCC, given the current predominance of the FIDIC forms of contract.
The NEC suite, much more so than the FIDIC forms of contract, relies on the parties conducting themselves in accordance with principles of good faith, a concept well recognised across the GCC and expressly enshrined in many of the GCC countries' laws.
Transitioning to the NEC would however still require a substantial change in mindset of all project participants, away from the traditional adversarial attitudes that plague the construction industry in much of the world. It will be interesting to see how the GCC construction industry responds to the new NEC4 suite – a contract suite specifically developed to appeal to a wider "global" audience.