NEC4 - Emperor's new clothes?

It’s here! Shout it from the rooftops! Roll out the red carpet! With all the pizzazz often associated with the release of a Hollywood blockbuster, NEC has unveiled NEC4. This article looks at some of the changes and considers whether the “re-boot” was worth the wait.

Terminology

NEC has maintained the same structure and approach as its previous forms. To ensure there is greater consistency and clarity across the suite, NEC has changed some of the terminology. In summary:

• Gender neutral language is used throughout
• “Scope” replaces “Works Information” and “Service Information”
• “Client” replaces “Employer”
• “Early Warning Register” replaces “risk register” to avoid confusion with the project risk register
• Section 8 has been renamed, “Liabilities and Insurance” to clarify the intention of this section of the contract.
• The disputes section is now known as “Resolving and Avoiding Disputes” to emphasise that NEC is a collaborative contract

New contracts

The market place for standard form construction and engineering contracts is a crowded one. It is important, therefore, for publishers to protect their turf and appeal to new customers so that the pennies keep rolling in. “Brand NEC” may have had this in mind with the introduction of the Design Build Operate (DBO) contract. The DBO is likely to appeal to those who work on process plants and the like, which is a buoyant market in the UK and farther afield. No doubt the NEC hopes to nibble away at FIDIC’s market share.

NEC has also issued an Alliance Contract (ALC) for consultation. This form of delivery contract is popular in America and Canada. The ALC should help to raise NEC’s profile in those countries. It also signals NEC’s intention to challenge the ACA’s excellent Project Alliance contract.

The changes: improved project management

NEC has introduced a number of changes to improve how projects are managed. For example, clause 13.4 requires the Project Manager to provide detailed reasons for not accepting a Contractor’s proposal. This should help to encourage greater collaboration between the parties, but it will add to the “admin burden”.

Clause 31.3 introduces a new provision: deemed acceptance of the programme, a concept which will be familiar to those who use FIDIC. The NEC4 clause states that if the Project Manager does not respond within the time allowed, it will be deemed to have been accepted by the Project Manager. Although NEC hopes that clause 31.1 will help to overcome the stalemate which sometimes occurs when the parties cannot agree the latest programme, this clause is likely to be a source of tension between the parties.

The NEC4 now encourages the Contractor to offer value engineering (clause 16). This ought to promote greater collaboration between the parties, particularly if the parties include the new X22 secondary option, which promotes early contractor involvement.

The BIM clauses have been amended. Secondary option X10 addresses “Information Modelling”. The terminology has been chosen to appeal to the international clients. In previous forms the “BIM” clauses assumed that the clients would use the CIC BIM protocol. The Information Modelling clauses are not tied to the CIC. The clause also states that the client will own the model, something which consultants are grappling with at the moment.

The changes: Payment

There have been a number of changes to the payment provisions. The Contractor is required to submit monthly applications (clause 50.2), something that was absent from the previous forms. If the Contractor does not submit an application, the Contractor is not entitled to an increase in the amounts due to it. This is a sensible change.

There is a new requirement for a final assessment. The final assessment borrows from the JCT and should help to resolve payment issues at the end of the project, although of course the NEC would argue that these issues should be aired and resolved proactively during the course of the works. The timescales are tight and this may result in project management “gamesmanship”.

The NEC has revised the Defined Cost mechanism. Clause 50.9 allows the Contractor to request a review and acceptance of its Defined Cost, rather than wait until the end of the project. As with the other changes, this should help to deal with issues proactively. A potential risk with this change is that it could lead to a contractor “ambush”.

NEC4 includes sub-contractor costs in the Schedule of Cost Components. This means that the Defined Cost will be the cost paid to the sub-contractor. Working Area overheads, design area overheads and people overheads have been removed. The relevant items are now paid as Defined Cost. There is now only one fee and no separate fee for sub-contracted works. This will help to simplify the monthly applications.

The changes: compensation events

There are two new compensation events:

• 60.1(20) – where a quotation is not accepted by the Project Manager 
• 60.1(21) – additional events stated in the Contract Data

The second of these events does not replace the old clause 60.1(14), which remains in NEC4, although clients often amend this clause.

In Options A and B, the definition of Defined Cost no longer excludes the cost of preparing quotations for compensation events. This is something which contractors used to grumble about and is a sensible tweak.

There are some important changes to clauses 63.1 and 63.5. Clause 63.1 provides clarity on the “dividing date” between the use of actual and forecast Defined Cost. It will be interesting to see how this clause is used given the court’s guidance in Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited NIQB 43. (See Paul Slinger's article on this case).

Clause 63.5 states that the programme to be used to assess the impact of the compensation event is the accepted programme at the dividing date. This may create debate given that there may be a revised programme at the time the event is assessed. The NIHE v Health Buildings case may assist the Project Manager to deal with this issue.
 

The changes: other

NEC4 includes a number of other changes which reflect up to date practices and user feedback. For example, NEC has revised the design liability X15 secondary option. The new clause is more traditional than the previous version and broadly adopts the “reasonable skill and care” format. This will please contractors and their insurers.

The insurers will also welcome the amendments to the “liabilities” section. All references to “indemnity” have been removed and replaced with “recovery of costs” (clause 82.2). Clients may seek to narrow this. There is no longer a “catch all” clause and clients may look to introduce this clause.

There are new clauses which deal with:

• Corrupt acts (clause 18) 
• Assignment (clause 28) 
• Disclosure/publicity (clause 29) 
• QMS (clause 40) 
• Collateral warranties (X8)

These clauses improve the NEC suite, although we anticipate that clients will amend some of the new provisions (eg, the assignment clause).
 

NEC4: Emperor’s new clothes?

The revisions promote greater collaboration between the parties and encourage openness and transparency. NEC has ironed out some of the wrinkles in NEC3. NEC has also listened to users’ feedback and the new clauses improve the contract for the client and the contractor. It would be unkind, therefore, to compare NEC4 with the Emperor’s new clothes, but given the delirium and brouhaha which surrounded the launch of the NEC4, perhaps it would be accurate to describe it as the NEC’s latest “Golden Goose”!