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The Next Generation – Key Changes for the NEC4 Future

The new generation of the NEC suite of documents is here.  Published on 22 June 2017, and 12 years since the NEC3 suite was launched, Hannah Newman considers the key changes and implications of the NEC4?

NEC contracts have become among the most popular procurement routes for UK construction projects with a focus on teamwork, collaboration and the use of plain English. 

Given the success of the NEC3 over the past 12 years, the NEC4 is described by the Institution of Civil Engineers as an "evolution not revolution" enhancing the content of the NEC3, rather than being a wholesale change in philosophy.  The changes made are based on real industry feedback in order to reflect the developing requirements of users.

Many of the changes will already be familiar, introduced to deal with industry developments, as well as legislative and client demand. Other changes are new features which seek to fill the gaps in the NEC3 identified by users with the aim of avoiding the need for bespoke "Z" clause amendments.

Key Changes

Terminology

The NEC4 introduces a number of changes in terminology with a view to ensuring consistency across all contracts in the suite, for example:

  1. The NEC4 is now gender neutral.

  2. Reference to the "Employer" is changed to "Client" across the suite (apart from the NEC4 Supply Contracts).

  3. The term "Scope" is used in all contracts to describe the document that sets out the work being provided.

  4. The "Early Warning Register" replaces the "Risk Register".

  5. Section 8 (Risk) is renamed Liability and Insurance.

  6. The "Parent company guarantee" has been renamed "Ultimate holding guarantee" (Secondary Option X4).

  7. "Partnering" has been renamed "Multi-Party Collaboration" (Secondary Option X12)

Legislative Demands and Industry Developments

New Core clauses and secondary options have been introduced to address the following key areas:

1. Bribery and Corruption

 A new clause has been introduced imposing express obligations on the contractor and its supply chain not to commit corrupt acts. This clause reflects the increasing focus on bribery and corruption worldwide and brings the NEC4 up to date with other standard form construction contracts.

 2. Building Information Modelling (BIM)

The NEC4 incorporates a new secondary option for "information modelling" dealing with issues relating to ownership of information and liabilities of the parties.

3. Early Contractor Involvement (ECI)

Substantially similar to the NEC's previously published ECI clauses introduced in 2015, ECI has now been incorporated into the NEC4 as a new secondary option permitting the client to appoint the Contractor at an early stage helping to achieve better cost and time estimates along with better risk management.  

 4. Contractor's Proposals

A new core clause has been introduced for value engineering.  In addition, the Contractor now has the option to propose acceleration to achieve Completion before the Completion Date.

 5. Dispute Resolution

This section is now called "Resolving and Avoiding Disputes" rather than "Dispute Resolution".  Options W1 and W2 include a new "escalation and negotiation" step allowing for a consensual four week negotiation period aimed at encouraging the parties to engage with each other before formal proceedings are commenced.  A new Option W3 provides for the use of a "Dispute Avoidance Board" as an alternative to adjudication for contracts not subject to the Housing Grants, Construction and Regeneration Act.

Requirements of Users

The following changes have been introduced in an attempt to reduce the number of "Z" Clause amendments that users commonly make to the core NEC clauses:

1. Assignment

A new core clause permits either party to assign their rights under the contract to another party on notification to the other.

2. Confidentiality

New core clauses have been introduced to restrict the disclosure of confidential information relating to the project.

3. Deemed Acceptance of Programme

If the Project Manager fails to respond to a programme issued for acceptance by the Contractor within the specified timeframe, the programme is deemed accepted.

4. Quality Management

A new core clause has been introduced to deal with "Quality Management".

 5. Risks and Insurance

Amendments have been made to this section to address concerns raised by users' insurance advisors:

  • References to "Risks" have been changed to "Liabilities".

  • References to "indemnity" have been removed and replaced with "recovery of costs".

  • The Contractor's liabilities are now set out in detail rather than being described by exception as in the NEC3.

  • In some NEC4 contracts there is a requirement that joint insurance policies include a waiver of subrogation rights.

 6. Compensation Events

A new compensation event has been introduced entitling the Contractor to claim its costs of preparing quotations for proposed instructions which are not accepted by the Project Manager.  There is also provision for additional compensation events to be listed in the Contract Data Part 1.

7. Final Assessments

Unlike previous versions of the NEC, the NEC4 introduces new procedures for agreeing final amounts due.

8. Collateral Warranties

A substantially new secondary option has been introduced dealing with the provision of collateral warranties. 

9. Schedules of Cost Components and Fee

Amendments have been made to simplify the Schedule of Cost Components.

In addition to the above amendments the NEC4 suite of documents also introduces three new contracts, The Professional Service Subcontract and Term Service Sub-Contract, the Design, Build and Operate (DBO) contract, and the Alliance Contract (ALC).

Implications

As with any new standard form, users will need to take time to consider the new changes before negotiating their first NEC4 contract.  In general, those familiar with dealing with NEC3 contracts should have no issues transitioning to using the NEC4.

The new clauses which seek to address the gaps in the NEC3 ought, in theory, to reduce the need for pages of additional "Z" Clauses, thereby easing contractual negotiations.  In practice, however, it remains to be seen whether the new NEC4 will reduce the need for bespoke amendments. 

In reality, users will still to rely on "Z" Clauses to address specific project requirements and commercial considerations.

By Hannah Newman

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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