Spoiler alert: new (and) enhanced contract? NEC4

We have waited 12 years but we are now just weeks away from the new suite of NEC contracts which will be known as NEC4. The NEC has issued a paper setting out some of the features of the new contracts, the keys ones which we summarise below.

New forms of contract

NEC4 Design Build Operate 

Key features:

  • single point responsibility for design, construction operation and/or maintenance
  • no finance option, and can include different services for before, during and after the engineering, and
  • construction works.

The Alliance Contract - consultation  

Key features:  

  • will be published initially for consultation
  • multi party contract, and 
  • basis of contract is said to be “that all parties work together in achieving Client objectives, and share in the risks and benefits of doing so”.

Key new features

Consensual Dispute Resolution

  • Four week period for escalating and negotiating a dispute prior to any formal proceedings commencing .
  • Consensual when the Housing Grants, Construction and Regeneration Act 1996 (as amended) applies, mandatory when dispute resolution option W1 applies.

Dispute Avoidance Board (DAB) Option

  • The Engineering and Construction Contract will include a provision for parties to refer any dispute to a DAB if the Housing Grants, Construction and Regeneration Act 1996 (as amended) does not apply.
  • It is intended that DAB visits the site and “help find a solution” failing which it will provide a recommendation.
  • A dispute can only be escalated to litigation or arbitration (whichever is applicable) if the DAB’s recommendation is not accepted by the parties.

Finality of Assessments

  • New procedures aimed at reaching agreement at final assessment stage.

  • Procedure for Defined Cost:

Contractor notifies the Project Manager when part of the Defined Cost is ready for Review

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Project Manager is required to review within 13 weeks and communicate acceptance or advise of errors.

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If Project Manager fails to do so then the Contractor’s Defined Cost and Disallowed Cost are treated as accepted.

  • Procedure for final assessment:

Project Manager to issue final assessment of payment due to Contractor within four weeks of the issue of the Defects Certificate. If this is not done then:  

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  • Contractor may issue its final assessment.

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  • Final assessment becomes conclusive if not challenged by either party referring the issue to dispute resolution within four weeks of final assessment being issued.

  • If Project Manager fails to do so then the Contractor’s Defined Cost and Disallowed Cost are treated as accepted.

As the NEC puts it “The benefit of these clauses is to aim to bring commercial finality to the Contract. It encourages the parties to work together in advance of the deadline to ensure agreement is reached”. It will also no doubt encourage very clear diary keeping by the Project Manager!

Collateral Warranties

  • Parties won’t need to rely on the Z clause amendments to procure collateral warranties as new secondary option is introduced.

Early Contractor Involvement (ECI)

  • Secondary option to allow the appointment of a Contractor at an early stage to participate in design development.

Building Information Modelling (BIM)

  • New secondary option for BIM.
  • Contractor to provide an Information Execution Plan which satisfied the BIM requirements provided by the Client.

Additional Compensation Events

  • What is described as a “new facility” has been added to enable a Client to add new Compensation Events without a Z clause.
  • New Compensation event for when a Project Manager notifies the Contractor that its quotation is not accepted - the Contractor then gets the cost of preparing the quotation.

Programme

  • “treated acceptance” of a Contractor’s programme if Project Manager does not respond to a programme.  
New terminology Old terminology
Client Employer
Scope Works Information, Service Information, Goods Information
Early Warning Register Risk Register
Liabilities and Insurance Risk
Ultimate Holding Company Parent Company Guarantee
Multi-party collaboration Partnering

Conclusion

NEC is and always has been keen on collaboration and we are keen to see what the uptake is like on the new proposed Alliance Contract and to what extent the new consensual dispute resolution means that disputes are resolved without the need to commence formal proceedings.

NEC4 does have some new seemingly condition precedents clauses that Contractors will welcome such as the provision that provides that in the absence of a timely response from a Project Manager the Contractor’s Defined Cost and Disallowed Cost are treated as accepted as its Programme.

Collaboration and “treated acceptance” are a fine balance to try to maintain and no doubt we will have to wait and see how they actually work in practice.

More to follow in June 2017 when NEC4 is actually published.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.