NEC publishes new amendments to NEC4 suite

The NEC has published a second set of amendments to its NEC4 suite of contracts, reflecting user feedback from the industry and recent legal development.  The October 2020 amendments can be found on the NEC site.

Key amendments to NEC4 contracts

1. Delay damages

In all NEC4 contracts that contain an option for delay damages there have been amendments to clarify that the client’s entitlement to be paid delay damages will cease at termination. After termination, any further delay costs will form part of the general costs/damages due as a result of the termination of the contractor’s/consultant’s obligation to provide the goods, works or services.

This amendment has been included following last year’s Court of Appeal decision in Triple Point Technology Inc v PTT Public Company Limited. In this case, a liquidated damages provision had no application when a contractor did not complete its works. This meant that any accrued liquidated damages up until the date of termination were no longer payable and the employer was only entitled to claim general damages (damages which require proof of the losses claimed) for the delay.

2. Contractor’s/Sub-Contractor’s liabilities and use of equipment, plant and materials

In the Term Service Contract, Term Service Sub-contract and Design Build Operate Contract clause 81.1 has been amended to clarify that the contractor / sub-contractor is liable for loss of or damage to any equipment provided to it by the client / contractor.

In contracts which set out the contractor’s rights to use equipment, plant and materials and other materials provided by the client, NEC has simplified the provisions in clause 7.

3. Early contractor involvement

Secondary Option X22, an option which applies to the Engineering and Construction Contract and the Alliance Contract, has been amended to provide greater flexibility in the development of a project in stage one and also to provide a more structured process for the contractor’s submissions and the notice to proceed to stage two (as described in the Scope).

The project manager and the contractor now have an obligation to agree any changes to the access dates, key dates and the completion date, as well as agreeing any necessary changes to the total of the prices.

4. Project bank accounts

Various amendments have been made to all the contracts in the NEC4 suite except the Design Build Operate Contract and Professional Services Short Contract in the Secondary Option Y(UK)1 (Project Bank Account) provisions to reflect electronic banking methods. The main changes are:

• Choice of account holder – the client can now decide whether the account is held by the contractor or held jointly by the contractor and the client. This enables the client to decide its level of involvement in administering the Project Bank Account, such as establishing and approving payments from the Project Bank Account. The account holder will be identified within the Contract Data.
• Electronic banking – the procedures have been updated to be more compatible with current electronic banking methods.
• Payment schedule – which is prepared by the contractor and given to the project manager replaces the authorisation document. The payment schedule lists the payments to be made to the contractor and named suppliers from the project bank account.
• Project bank account tracker – the contractor is now required to prepare and maintain a project bank account tracker. This records all payments made to and from the Project Bank Account and the date each payment was made. The contractor issues the project bank account tracker to the project manager when payments are made from the project bank account.

Dates for payment

Following, a TCC decision from earlier this year, Secondary Option Y(UK)2 (The Housing Grants, Construction and Regeneration Act 1996) provisions in the NEC4 contracts (including the Professional Service Contract, Term Service Contract and Design, Build and Operate contract) where the final date for payment was linked to receipt of an invoice from the contractor/consultant have now been amended.

In accordance with the Rochford Construction Limited v Kilhan Construction Limited decision, the final date for payment is either a period of seven days after the ‘due date’ or the period stated in the contract/subcontract data and no longer runs from the date of receipt of an invoice by the payer.
The ‘due date’ for payment is now the later of the date of receipt of an invoice by the paying party or fourteen days after the assessment date. These amendments do not change the overall timescales for payments.

In Rochford Construction Limited v Kilhan Construction Limited, it was held that the final date for payment must be a fixed period of time from the due date and cannot be linked to the provision of invoices, which would mean non-compliance with the Housing Grants, Construction and Regeneration Act 1996.

Still using NEC3?

NEC has confirmed that it will no longer provide updates for the NEC3 suite of contracts. If you are still using the NEC3 standard forms, you should consider incorporating similar amendments to ensure your contracts reflect best practice and recent legal developments.