Table of Contents
Introduction 4
1.1 Aims & Objectives 4
Literature Review 4
Background to Construction Contracts 4
Introduction to NEC4 5
Introduction to NEC3 6
Key Differences 7
Critical Analysis 11
Greater stimulus to good management 11
Support new procurement approaches 13
Improve Contract Management in new markets 15
Conclusion 16
References 17
1. Introduction
1.1 Aims & Objectives
In this report, the aim is to provide a detailed understanding into NEC4 Suite of Contracts which innovate the way construction contracts are managed for future projects. NEC4 have been focusing particularly on three key objectives to improve the approach to contract management and management techniques.
By analysing the new version of the NEC, NEC4 and comparing the contracts against the older version, NEC3. While discussing the changes between the both contracts and whether NEC have managed to identify the set objectives to ensure an efficient delivery within the building contracts.
2. Literature Review
2.1 Background to Construction Contracts
In the construction industry there is a wide range of contracts that might be able to adapt to any procurement route to a widely diversified industry, these methods can be amended and stated by the Employer.
These are the most common used Contracts used within in the industry;
NEC Suite of Contracts
JCT Standard Building Contract
FIDIC Suite of Contracts
RIBA Building Contracts
Institute of Civil Engineers (ICE)
These main contracts are created to suit the variety of procurement routes in the construction industry and projects. Different procurement routes can be distinguished by either design and Build, Lump Sum contracts or Management Contracts.
2.2 Introduction to NEC4
In the newly published NEC4 suite of Contracts, issued in June 2017. The NEC plays a part in managing contract details and encourage good management with clear and simple language from an endorsed team to achieve three key objectives in the construction industry from the NEC 4.
“ The main objectives are;
Provide a greater stimulus to good management
Support new approaches to procurement which improve contract management
Inspire increase use of the NEC in new markets and sectors.”
Barnes, et al.(2017, p10-11) Engineering and Construction Contract, NEC 4 document.
In the new addition to the main objectives, NEC 4 features an introduction to new approaches to procurement, a new design, build and operate contract which allows the tractability between operational requirements and construction. Detailing a new multi-party alliance contract which is based upon an integrated risk and reward model. In addition new forms of subcontract to improve integration of the supply chain.
Whether or not NEC4 has been able to achieve these objectives, this report will critically analyse the changes between NEC4 and NEC3, plus evaluating if the new version has been able to achieve each of the objectives set out.
The initial structure has remained the same, keeping the same uniform with; (a.) Core Clauses (b.) secondary Option Clauses and (c.) X and Y Clauses. Both the contracts feature the same format which is beneficial for past users to navigate through the contract manual.
2.3 Introduction to NEC 3
NEC3 was the new version of the suite of contracts from the development of the feedback in the early 1990s to aid the maturity of revolution of forward thinking in each project. The suite of contracts were able to provide several contracts; Supply Contract, Term Service Contract and a Framework Contract. Each implementing management principles and operations through a legal connection.
The guide is an aid for old and new users of the NEC to select the appropriate procurement route and contract strategies to obtain the project objectives.
NEC is a family of standard contracts, each of which has these characteristics:
Its use stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract.
It can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location.
It is a clear and simple document – using language and a structure which are straightforward and easily understood.
Barnes, et al.(2009, p 1) Procurement and Contract Strategies, NEC 3 document.
NEC have designed the contract document to allow Clients to achieve their objectives for the project; intended for quality, cost, performance and time. As well as allowing to set stringent aims with the assurance of attaining them, along side of the objectives.
The suite of Contracts is preconceived for international use in the aid to have a impartial jurisdiction for both the client and the contractor. Amendments are included in the secondary options for UK projects, in order to meet government legislations and similar procedure for other authority.
2.4 Key Differences
Comparing the difference between both versions, NEC3 and NEC4, the terminology have integrated some revised terms; “the ‘Employer becomes ‘Client’ and ‘Works Information’ becomes ‘Scope’”. The terminology is common in the construction industry thus it is clear for anyone to use and people that have never used NEC contracts before.
There is a number of programming changes, example NEC 4 Clause 31.3
“Within two weeks of the Contractor submitting a programme for acceptance, the Project Manager notifies the Contractor of the acceptance of the programme or the reasons for not accepting it. A reason for not accepting a programme is that
the Contractor’s plans which it shows are not practicable,
it does not show the information which the contract requires,
it does not represent the Contractors’s plans realistically or
it does not comply with the scope.
If the Project Manager does not notify acceptance or non-acceptance within the time allowed, the Contractor may notify the Project Manager of that failure. If the failure continues for a further one week after the Contractor’s notification, it is treated as acceptance by the Project Manager of the Programme.”
Barnes, et al.(2017, p 10-11) Engineering and Construction Contract, NEC 4 document.
The changes are similar to the text in a compensation event, the new requirement for the ‘treated acceptance’ for the contractor’s programme in scenarios where the does not respond to accepting the contractor’s programme. This new amendment will mean that there will be accepted programmes throughout the projects and give a better picture to when it comes to any delay and changes or have perception to the completion date.
In the updated version of NEC4, the ‘Risk Register’ has been retitled with ‘Early Warning Register’ this was to help divide it from the ‘Project Risk Register’ which is commonly used for a project management tool. This allows the Client and the Contractor to have early warning meetings to revert any mitigating risk efficiently and in time.
The payment procedure now requires the contractor to submit a payment application, this new method was introduced to have both parties working together to sort out the payment.
Analysing these changes between the two NEC versions, is fabricating both parties to work collaboratively and gain mutual trust, to work efficiently with good management strategies.
NEC 4 have newly introduced a changed in language, meaning that contracts are written in a gender neutral tone, meaning this is a step forward for the construction industry. Along side this, NEC4 have now added an alternative for a four week escalation period and negotiation in a case of a potential dispute., before any formal action. A chosen senior representative from each parties will meet and try to negotiate a solution. This is stated in Option W1,
“W1.1 (1) A Dispute arising under or in accordance with the contract is referred to the Senior Representatives in accordance with the Dispute Reference Table. If the dispute is not resolved by the Senior Representatives, it is referred to and decided by the Adjudicator”
Table 1
Barnes, et al.(2017, p 46) Engineering and Construction Contract, NEC 4 document.
The NEC4 contracts are encouraging both parties to work collaboratively and resolve any disputes before it reaches to a higher level. This conveys that NEC 4 are trying to encourage good management techniques therefore helping aim for their set out objective.
For better reflection, NEC4 have included a secondary option X12 for ‘Collaboration’ which was previously ‘Partnering’, which is the focus on how NEC are improving there procurement methods and improving contract management.
In Secondary option X16, states an optional retention bond which can be implemented instead of money retained.
“X16.1 After the Price for Work Done to Date has reached the retention free amount, an amount is retained in each amount due. Until the earlier of
Completion of the whole of the works and
• The date on which the Client takes over the whole of the works
the amount retained is the retention percentage applied to the excess of the Price for Work Done to Date above the retention free amount”
Barnes, et al.(2017, p 60) Engineering and Construction Contract, NEC 4 document.
Additionally, in clause 93.2. It states that;
“93.2 The amount due on termination also includes one or more of the following as set out in
the Termination Table.
A2 The forecast Defined Cost of removing the Equipment.
A3 A deduction of the forecast of the additional cost to the Client of completing the
whole of the works.
A4 The fee percentage applied to
for Options A, B, C and D, any excess of the total of the Prices at the Contract
Date over the Price for Work Done to Date or
for Options E and F, any excess of the first forecast of the Defined Cost for the
works over the Price for Work Done to Date less the Fee.”
Barnes, et al.(2017, p 30) Engineering and Construction Contract, NEC 4 document.
Introducing this clause, diminishes any confusion for fee percentage when tendering and quotations or assessing any submissions.
For the NEC suite of contracts to develop, NEC have introduced a new requirement for Contractors to produce quality management plan, this helps perform good practice across the industry. The new requirement replaces the core clauses for testing and defects.
Compared to NEC3, the new changes allows the users to solve obscurity quickly. But in the older version there was a few area for dispute, therefore the new amendments should resolve common problems in the construction industry.
With the new NEC4 amendments, it seems to be the common suite of contracts used in the industry and improving greater management with new alterations which is achieving the set objectives NEC wanted to achieve within the contract.
3. Critical Analysis
3.1 Greater stimulus to good management
In accordance to ‘The Quantity Surveyor’s Pocket Book’, illustrated by Duncan Cartlidge, the stimulus to good management is shown below;
NEC is a manual for contractual document as well as for manual procedures.
The manual is to convey the Project Manager with options to defeat and difficulties when they are evident
‘Early Warnings’ are able to place duty of care on both parties when any problems arise and could affect the project is ways of performance, money or time.
Another method of solving complications with both money and time will occur in a ‘Compensation Events’
Reference with a pricing schedule of ‘Actual Cost’
Changes in the construction programme must be kept up to date
This resolves any issues in a efficient manner and lessens any ‘End of Job’ disputes
Cartlidge, (2009, p 334) Contract procedure, administration and organisation, The Quantity Surveyor’s Pocket Guide
Early warnings are a part to stimulate good management in the construction industry, in accordance to NEC 3, “early warning procedures included in clause 16. These provide:
The contractor to give the project manager warning of relevant matters;
A relevant matter is anything which could increase the total cost or delay the completion date or impair the performance of the finished works;
The contractor and project manager are then required to attend an early warning meeting if one or the other party request it. Others might be invited to that meeting; and
The purpose of the early warning meeting is for those in attendance to co-operate and discuss how the problem can be avoided or reduced. Decisions focus on what action is taken next and who is to take that action.”
Gould, (2007, p 2) NEC3: Early Warning and Compensation Events, Fenwick Elliott LLP
In the latest version, NEC 4 have changes the ‘Early Warning’ to clause 15, 15.4 states that any revision between the Project Manager and Contractor has the be revised for the Contractor within one week of attending the early warning meeting. If any changes occur to the scope then the Project Manager is appointed to change that at the same time.
Compensation Events are key to encourage good management as in NEC4 Core Clause 60 .In the events of a compensation event, can entitle the contractor to additional time or money depending on the conditions of the issue and contractual agreement. If a compensation were to arise the contractor will need to submit a quotation and therefore should include a revision to the programme.
Analysing these clauses, they both. provide clear instructions enabling to resolving any discrepancies the may occur between both parties. This is beneficial in having the Client and the contractor working collaboratively and eliminating any potential of legal action for ‘ending disputes’.
3.2 Support new procurement approaches
In the latest version of NEC 4, has amended the secondary clause X15 to be Design and build option; the clause states;
“ X15.1 The Contractor is not liable for a Defect which arose from its design unless it failed to carry out that design using the skill and care normally used by professionals designing works similar to the works.
X15.2 If the Contractor corrects a Defect for which it is not liable under the contract it is a compensation event.
X15.3 The Contractor may use the material provided by it under the contract for other work unless
the ownership of the material has been given to the Client or
is it stated otherwise in the scope.
X15.4 The Contractor retains copies of drawings, specifications, reports and other documents which record the Contractor’s design for the period for retention. The copies are retained in the form stated in the Scope.
X15.5 The Contractor provides insurance for claims made against it arising out of its failure to use the skill and care normally used by professionals designing works similar to the works. The minimum amount of this insurance is as stated in the Contract Data. This insurance provides cover from the starting date until the end of the period stated in the Contract Data.”
Barnes, et al.(2017, p 59) Engineering and Construction Contract, NEC 4 document.
By introducing the Secondary Clause X15 into design and Build Option, it will improve a risk profile. The clause reduces the design obligation for the contractor and advances the liabilities. Including the clause will result in the contractor to evidently prove that the care and skill of the design and any difficulties will result in a compensation event.
NEC 4 have newly introduced the new forms such as Design Build Operate Contract and a multi-party Alliance Contract. The Design Build Operate contract is new project delivery replica which appoints one contractor to design and build the project and there after operate the project for a period of time.
The Multi-party Alliance Contract allows collaboration between all the project partners, this is secure by shared interests which can help reduce the likely hood of a dispute. These are more commonly considered for high complex projects with materialising scope.
These additions are beneficial in aiding all members of the projects to have essential contribution, be able to share and voice in their performance by either working collaboratively or having full control with these new contracts benefitting new approaches to how procure a construction contract.
3.3 Improve Contract Management in new Markets
To identify and improve contract management in new areas of the market, NEC are trying to reduce the difference between the main Engineer and Construction Contract (ECC) and the other NEC forms such like the Professional Services Contract (PSC) and Term Service Contract, by lessening the variances it smoothes the learning and understanding of any new NEC users. This would assist in the NEC improving the language to a simpler tone and appeal to new areas of the Market.
Cooperating with the similarity, NEC have constructed an available guidance manual to enhance the users understanding, furthermore enabling to encourage good management and reduce any uncertainties. E.g ‘4 Volumes of Users’ Guides dealing with:
“Establishment of a Procurement and Contract Strategy (Vol 1)”
“Preparing an NEC Contract (Vol 2)”
“Selecting a Supplier (Vol 3)”
“Managing an NEC Contract (Vol 4)”
There are over 24 guides supporting the use of the ECC, NEC 4 reviewed the construction the documents to aim to;
An easy structure flow for the guidance to make it prompt access.
Address any confusion or queries that the user may have after learning the ECC.
NEC have provided explanations to how to use the clauses appropriately
Also including a checklist to ensure the correct steps are taken
Knee-Robinson, T. (2017). NEC4 User Guides.
4. Conclusion
The NEC suite of Contracts has clearly portrayed the their objective clearly in both versions of the NEC manuals. In this report, each objectives are broken down into;
• Greater stimulus to good management;
• support new procurement approaches;
improve contract management in new markets
Utilising the new version NEC 4 allows the ‘Client’ and the ‘Contractor’ to have an understanding of the contractual agreements and procedures when needed.
NEC 4 features an introduction to new approaches to procurement, a new design, build and operate contract which allows the tractability between operational requirements and construction and a Multi-Party Alliance Contract which allows both parties to work collaboratively, share risk management and resolve any discrepancies.
NEC 4 has developed greatly to improving the innovative ways of executing good management in industry and introducing new users to adapt to working with the suite of contracts easily.