NEC4 – The Next Generation

Farhan Mubashir
There has been a real buzz in the industry since March 2017 announcement that NEC4, will be available in June.

NEC4 is the next evolution of the popular NEC suite of contracts, building on the success of the 2005 NEC3. The new suite of contracts aims to inspire and enable project collaboration across the UK and internationally. Designed to support innovation through digital advances and to encourage global collaboration, it aims to enable best practices in procurement and to deliver real project value.

NEC4 introduces two new forms of contract:

  • Design Build and Operate (DBO)
    Combining responsibilities from design phase, through construction to operation and/or maintenance from one single supplier created in response to industry demand

  • Alliance Contract (ALC)
    A single collaborative contract for large complex projects with a number of participants

The new suite of contracts aims to inspire and enable project collaboration across the UK and internationally

There are some changes to the Engineering and Construction Contract (ECC):

  1. Terminology
    The Employer will be known as the Client in all the forms except the Supply Contract.
    The ECC Works Information will be called the Scope. The Scope will describe the works in all NEC4 forms.
    The Risk Register has been renamed the Early Warning Register.

  2. BIM - NEC4 incorporates a new secondary option for the use of BIM. This deals with issues around the Information Model, ownership of information and liability of the parties.

  3. Bribery and corruption - Core clauses have been included to reflect the Bribery Act 2010 and the enhanced safeguards often required by Clients.

  4. Compensation events - Additional compensation events may now be added by the Client in the Contract Data Part One. A new compensation has also been added, in the core clauses, entitling the Contractor to claim for preparing quotations for a proposed instruction which are not accepted by the Project Manager.

  5. Confidentiality - Additional core clauses have been incorporated to restrict the disclosure of confidential project information.

  6. Contractor's proposals - The Contractor can now propose an acceleration toCompletion, and/or a change to the Scope in order to reduce lifecycle cost.

  7. Collateral warranties - There is a new secondary option for the provision of collateral warranties to other parties with an interest in the project.
    The style, layout, most terminology and key project management processes are the same as those in other NEC contracts.
  8. Design and build option - A new secondary option for design and build contracting, previously set out in the Works Information, dealing with:
    professional indemnity insurance requirements
    alignment of Contractor’s standard of skill and care for design to that commonly used by professionals designing similar works
    copyright licences
    retention of documents.

  9. Early Contractor Involvement (ECI) - Now directly incorporated as a new secondary option. The ECI permits the Client to appoint the Contractor at an early stage, to input into the design process to innovate and eliminate risks, achieving better cost and time certainty.

  10. Final assessments - NEC4 contracts (Main Options C, D, E and F) include procedures relating to agreeing final accounts. The Contractor notifies the Project Manager when the Defined Cost is ready for review. The Project Manager reviews it within 13 weeks and accepts it or advises of errors. If the Project Manager doesn’t comply, Defined and Disallowed Costs are accepted, encouraging the parties to assess costs regularly. The Project Manager must now issue its final assessment of the payment due to the Contractor within four weeks of the Defects Certificate. Otherwise the Contractor can issue its own final assessment, as in JCT contracts. The final assessment becomes conclusive if not challenged and referred to dispute resolution within four weeks of issue (again similar to JCT).

  11. Schedules of Cost Components and Fee - The Shorter Schedule of Cost Components has been deleted, leaving only the Schedule of Cost Components (SCC) in the contracts to assess Defined Cost for simplicity. Subcontractor costs have been moved to the SCC and payment is now consistent across the options. The rules for people have changed. If people’s normal place of works is within the Working Areas, their time spent working “on this contract” will be included within Defined Cost, as opposed to just their time spent within the Working Areas. There is no longer a separate fee percentage for subcontracted works.

  12. Tiered dispute resolution - A consensual four-week negotiation period between nominated senior representatives has been introduced for projects in the UK. It is mandatory for international projects. The ECC now also includes a dispute avoidance board option for international projects, similar to the DAB in FIDIC contracts.

  13. Assignment - A new core clause has been introduced to permit either party to assign their rights under the contract to another party. 

A Positive Step

At Faithful+Gould, NEC3 has been critical to many of our high-profile and iconic projects, including Crossrail, Heathrow Terminal 5 and London 2012 Olympic and Paralympic Games (where we provided support for our parent company Atkins). We expect that NEC4 will take over from NEC3, with very few problems. The style, layout, most terminology and key project management processes are the same as those in other NEC contracts. We’re encouraged by the NEC’s willingness to take on direct feedback from the industry – it’s a positive step to improve NEC4’s contractual framework, plugging some of the obvious gaps in the legal risks generally allocated within engineering and construction contracts.

Look out for more details of new provisions and any other changes – we’ll be commenting when the NEC4 contracts are released on 22nd June 2017.