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NEC4 – THE NEXT GENERATION OF NEC CONTRACTS

On 22 June 2017 the next generation of NEC contracts will be released.  The purpose of the changes is to promote teamwork and collaboration across the construction industry both domestically and internationally by building on the principles of NEC3 and by changing the NEC3 contracts to reflect lessons learnt and best practice in procurement.  The new contracts also make changes to accommodate digital advances and other regulatory and legislative developments within the industry.

The NEC4 contracts largely follow the same style, layout and terminology and general principles as the NEC3 contracts which should make the transition straightforward for construction professionals who are familiar with the NEC3 contracts.  The main changes apply to the full suite of NEC4 contracts and are summarised below.  Many of the changes are optional which allows flexibility.  In summary, there will be a greater range of procurement options available for clients.

By way of major changes, two new contracts will be introduced; the new “NEC4 Design, Build and Operate Contract” (DBO) which enables one supplier to take responsibility for the design, construction and the operation and/or maintenance of the project and, a new “NEC4 Alliance Contract” (ALC) which is a multi-party contract designed to encourage collaborative working.  The ALC will enable the client to integrate the design team into a single contract allowing collaboration between the parties.

Main Changes

The main changes are summarised below:

  • New terminology – Some of the main terms have been replaced.  The Employer is now the Client, the Works Information is now the Scope and the Risk Register is now the Early Warning Register.
  • Contractor Design – There are new secondary options to facilitate contractor design including provisions for professional indemnity insurance and intellectual property rights.
  • Early Contractor Involvement – A new secondary option to enable early appointment of the contractor at the design stage with the aim of promoting collaboration.
  • Contractor’s Proposals – There are changes which permit the contractor to suggest changes to the Scope which will result in costs savings or an acceleration of the works.
  • Defined costs – Defined Costs will now be used in the same way across the NEC4 contracts as in the ECC, namely in the Professional Services Contract, the Term Service Contract and the Supply Contract.  This allows a common approach to costs across the supply chain.
  • Dispute avoidance – NEC4 introduces a new 4 week period for consensual negotiation of a dispute which is mandatory before any formal proceedings are commenced.  This involves nominated senior representatives meeting to try to reach a settlement.  This is mandatory where dispute resolution option W1 applies and is consensual where option W2 applies (option W2 applies where the contract is subject to the Construction Act).  The ECC now includes an option W3 which can be used where the Construction Act does not apply.  This involves referring a dispute to a Dispute Avoidance Board (“DAB”) which is nominated by the parties at the outset.  The DAB has the power to make recommendations to the parties to resolve disputes.  No formal dispute resolution proceedings can be commenced unless the recommendation of the DAB is rejected by the parties.  The aim of these changes is to encourage informal dispute resolution by encouraging consensual settlement of disputes.
  • Final Assessments – There is a new procedure for the issue by the Project Manager of the final assessment of payment at the end of the Defects Correction Period to encourage certainty of payments. There are also new procedures to encourage the checking and agreement of Defined Costs and Disallowed Costs.
  • Additional Compensation Events – A new compensation event has been introduced where the Project Manager notifies the Contractor that a proposed instruction is not accepted which will allow the Contractor to recover the cost of preparing the quotation.  The Contract Data now envisages the inclusion of additional compensation events.
  • Collateral Warranties – There is now a secondary clause which includes an express requirement for the provision of collateral warranties.
  • Payment Provisions – The contractor is now required to make an application as a condition precedent to payment.
  • Other changes – NEC4 introduces a number of other changes to accommodate digital advancement, changes in legislation and to encourage best practice.  For example, there are changes in relation to BIM, an obligation on the Contractor to prepare and issue a quality management system, anti-bribery and corruption provisions and confidentiality provisions.

Summary

NEC3 is hugely popular in the industry, particularly in the nuclear industry and for major infrastructure projects.  The new NEC4 contracts aim to build on the success of NEC3 by updating the contracts to reflect current best practice, regulatory and legislative changes and to improve clarity and simplicity.  We envisage that NEC4 will be quickly adopted throughout the industry without any major teething problems.

Further information can be found at www.neccontract.com/NEC4-Products/NEC4-Contracts

If you have any queries in relation to NEC4 or any general construction and engineering queries then please do not hesitate to contact Katherine Sibley on 01228 552600 or 01524 548494.

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