NEC4

Revision as of 09:27, 30 May 2017

Introduction

In March 2017, it was announced that NEC4, the next evolution of the NEC suite of contracts, will become available in June 2017. Sculpted from 20 years of user feedback, NEC4 aims to inspire and enable project collaboration across the UK and internationally.

Speaking at the Society of Construction Law Conference, the NEC Contract Board’s Matthew Garratt revealed that NEC4 will be made available for the very first time at the largest ever gathering of the NEC Users’ Group Annual Seminar on June 22nd 2017.

The NEC4 suite evolves out of NEC3 and has been specially designed to support innovation through digital advances and encourage collaboration across the world. Delivering real project value and enabling best practices in procurement, NEC4 recognises the need for contract administration, terminology and risk management to evolve. It is hoped that this will enable all disciplines across a flexible industry to procure, manage and deliver truly collaborative projects.

The use of NEC3 and its ongoing training provision across all disciplines will continue to be fully supported alongside the introduction of NEC4 training, events and support services.

NEC4 will be officially made available to purchase following the June 22 NEC Annual Users’ Group Seminar, to be held at the etc.venues, County Hall, London.

Changes in NEC4 works contract

The new works contracts are:

• NEC4 Engineering and Construction Contract (ECC).
• NEC4 Engineering and Construction Subcontract (ECS).

The changes have been designed to support the on-going drive for further collaboration and integration of teams, greater use of modern work methods, better avoidance of disputes and more effective identification and management of risk and opportunity – all of which will help lead to more successful outcomes.

There have been key changes to provisions in the ECC and ECS, as follows:

Early warning provisions

The 'Risk Register' has been re-named the 'Early Warning Register' to distinguish it from the project risk register often used for wider project management purposes. There are now default periods for early warning meetings.

Programming changes

There are new 'dividing date' provisions similar to those used in compensation events. New provisions provide for 'treated acceptance' of the contractor's programme in situations where the project manager does not respond to a programme issued by the contractor for acceptance, or to a reminder. This is to unlock the impasse which can sometimes occur.

Terms standardised

'Employer' becomes 'Client', and 'Works Information' becomes 'Scope'.

There are also some important new provisions in ECC and ECS to help promote collaboration, as follows:

Identifying opportunities

An additional procedure includes the identification of opportunities by either party. These are discussed jointly and the contractor can share in the cost savings of opportunities that it initiates

Early contractor involvement

This is now included as a secondary option, based upon the clauses published by NEC in 2015.

Supporting information modelling

A new secondary option is added specifically to support the use of information models and digital engineering models. This requires the contractor to provide an information model execution plan either for incorporation in the contract from the outset, or within a period defined by the client.

Dispute negotiation

A 4 week period for escalation and negotiation of a dispute has been introduced, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution.

Dispute avoidance

The works contracts now include a dispute avoidance option W3 which can be used if the UK Housing, Grants, Construction and Regeneration Act does not apply. This is to refer any dispute to a dispute avoidance board. The benefit of this new option is to encourage and support the parties in resolving any potential dispute consensually, and to support users who wish to use this facility on their projects.

Financial agreement

For payment applications and final accounts, there are now procedures aimed at reaching agreement on the final amounts due. Provisions have been introduced to the cost-based contracts (main options C to F) that allow the contractor to instigate a review and acceptance of its defined cost by the project manager, upon request.

This encourages checking and agreement of defined cost and disallowed cost progressively as the work proceeds, and not to defer the exercise until the project has been completed.

Other new and changed provisions in ECC and ECS include the following:

Collaboration

In secondary option X12, 'Partnering' has been changed to 'Collaboration' better to reflect the intent.

Retention

The secondary option X16 for retention now includes the optional provision of a retention bond instead of having money retained.

Confidentiality

A new core clause deals with confidentiality, restricting the disclosure of project information.

Communication

The use of a communication system, including an electronic one, are recognised through amended clause 13.2, and if required is defined in the scope.

Quality

Section 4 quality management provisions introduce a requirement for the contractor to prepare and issue a quality management system and a plan.

Schedules of cost components

Some changes have been made to simplify the schedules of cost components and associated contract data inputs. The 'Schedule of Cost Components' is used only for main options C, D and E and the 'Short Schedule of Cost Components' has been removed from these contracts. The short schedule is now used exclusively in options A and B and only to assess compensation events. It adopts a pre-priced approach for people cost to replace the previous cost-based approach.

Fee percentage

There is now only one fee percentage, with no separate fee percentage for subcontracted works. The application of fee to defined cost is consistent across all main options.

Changes in NEC4 supply contract

The new supply contracts are:

• NEC4 Supply Contract (SC).
• NEC4 Supply Short Contract (SSC).

Since they first appeared in 2009, the two supply contracts have become increasingly widely used. This is anticipated to continue as the NEC4 suite becomes the 'contract of choice' for many organisations.

The SC and SSC enable the purchase of goods of any complexity sourced from anywhere in the world. The contracts can be for any sector and any level in the supply chain.

The updated contracts have better alignment with the NEC4 suite of contracts, provide improved commercial arrangements and offer more opportunities for purchasers and suppliers to be proactive and innovative.

The main changes from the NEC3 versions are as follows.

Managing risk

As with other NEC4 contracts, the term 'Risk Register' has been replaced with the more appropriately termed 'Early Warning Register', better reflecting the risk management process within the contract.

Communications

The communication protocol also now includes provision to specify a communication system within the scope. This mirrors modern use of the SC and frequent adoption of collaborative software systems in practice.

Scope

This replaces the term 'Goods Information' and is now standard in all NEC4 contracts. The scope includes supply requirements, which allow users to comply with the latest international trading terms if they need to do so.

Cost transparency

Commercial amendments include an improved definition of cost. This now sees the incorporation of a detailed schedule of cost components. Provision for people rates have also been included.

Option improvements

The X12 partnering option has been replaced with a multiparty collaboration option, a term which better describes the structured collaborative agreements typically seen on larger contracts. This should help suppliers in being genuinely included within supply chain arrangements and provide real incentive for innovation. This is further enhanced through a new option on supplier's proposals. This provides the facility for the supplier to propose changes to the scope to reduce the cost of an asset over its whole life.

Changes in NEC4 service contract

The new service contracts are:

• NEC4 Term Service Contract (TSC).
• NEC4 Term Service Short Contract (TSSC).
• NEC4 Professional Service Contract (PSC).
• NEC4 Professional Service Short Contract (PSSC).
• The new NEC4 Dispute Resolution Service Contract (DRSC – based on the NEC3 Adjudicator’s Contract).

Since the service contracts have been changed in the same way as all contracts in the NEC4 family, there are a number of changes in common with those in the works and supply forms. This includes standardisation of terms, with 'Employer' becoming 'Client' and 'Service Information' becoming 'Scope'.

Other changes in the NEC4 TSC and NEC4 PSC make the total changes arguably more significant. This article looks at the specific changes to the service contracts.

TSC

The principal changes specific in the NEC4 TSC compared to the NEC3 version are as follows:

Service manager instructions

NEC3 acknowledged changes to the affected property could occur, but in NEC4 the service manager may instruct them. This will be useful where the extent of a client's asset fluctuates, for example increases in numbers of houses for housing associations or new roads for highway authorities.

Task orders

NEC4 reinforces the intended purpose of task orders with clearer distinction over how instructions changing the scope, task orders and 'call off' against existing scope work in combination.

Accepted plan and task order programmes

A failure by the service manager to reply to plans submitted for acceptance paves the way for a new sanction, similar to that for compensation events, resulting in it being treated as accepted.

Payment

NEC4 TSC requires the contractor to submit an application for payment before each assessment date and, following the service manager's certification of payment, the contractor is required to submit an invoice.

Compensation events

Two new compensation events address material differences in anticipated versus actual quantities, and the correction of mistakes in the price list.

Schedules of cost components

In NEC4, the TSC, like the ECC, now includes both a schedule of cost components and a short schedule of cost components. A new concept of service areas provides clarity in distinguishing defined cost from fee.

Extending the service period and accounting periods

The ability for the parties to agree to extend the service period has been elevated into a new secondary option. A further new secondary option provides for a final amount due at the end of each accounting period.

PSC

In drafting NEC4 the decision was taken to bring PSC closer to the other contracts and move away from what might be considered a more traditional way of appointing a consultant or other professional.

This has resulted in considerable change – indicated by a name change from Professional Services Contract to the Professional Service Contract to show its relationship to the TSC. While many of the changes are those seen in the TSC, there are some areas where it still differs from it.

The principal changes are as follows:

Service manager and payment

The employer's agent option X10 has been removed and a service manager introduced as integral to contract. Among other changes this brings, the assessment of the amount due now lies with the service manager rather than with the consultant.

Defined cost

This has been introduced together with a schedule and shorter schedule of cost components. These follow the principles of the schedule and shorter schedule of cost components in the ECC and, now, the TSC.

Option G

This has been removed, leaving options A, C and E. A client which wants a call-off arrangement for professional services is now expected to set up a framework using the NEC4 Framework Contract (FC) and PSC contracts for the work packages. Small packages of work could be instructed under the PSSC.

Termination

By bringing PSC in line with other NEC4 contracts, the termination provisions have been changed, providing the parties with more clear and extensive termination rights.

Programme

This has retained its importance as a management requirement, and the new sanction of deemed acceptance for a lack of response from the service manager is also included in the PSC.

TSSC and PSSC

The new TSSC and PSSC reflect the procedures adopted in the new TSC and PSC while still retaining simplicity of management.

Changes include:

• Modifications to the compensation event procedures, with a defined cost approach now adopted, and one fee percentage quoted.
• A procedure to agree people rates.
• The option of adjustments to the prices for inflation.

DRSC

The DRSC is the NEC4 version of the NEC3 Adjudicator's Contract (AC), emphasising that it is not restricted just to appointing an adjudicator. It can also be used to appoint a member of the dispute avoidance board in an NEC contract.

A new section to apply to the duties of a dispute avoidance board member has been introduced as an alternative to the adjudication section in the AC. Users of the AC should easily transfer to this new form.

For all the latest up to date information about NEC4 visit www.neccontract.com.

This article is made up of one originally published here by ICE on 3 Mar 2017, written by Lucy O'Connor, one published here by ICE on 15 May 2017, written by Robert Gerrard, NEC Users’ Group Secretary and Tim Knee-Robinson, NEC4 drafter, and one published here by ICE on 29 May 2017, written by Ross Hayes and Ben Walker, NEC4 drafters.

--The Institution of Civil Engineers

Find out more

Related articles on Designing Buildings Wiki

• Articles by ICE on Designing Buildings Wiki.
• Construction contract.
• Contract conditions.
• FIDIC.
• ICE Conditions of Contract.
• JCT.
• NEC3.
• NEC contract change management systems.
• Procurement route.