NEC4: enhancing NEC3

After 12 years of NEC3 and its approach to proactive project and risk management, NEC releases NEC4 on 22 June 2017. NEC has described this as an evolution but not a revolution, indicating that it has built on the success of NEC3 and, following feedback from the users, has included certain new features and introduced 2 new forms of contract.

NEC has published a paper summarising the changes called “NEC4: The next generation – An explanation of changes and benefits” which can be accessed here.  We have highlighted the key changes below.

Two new contracts

• NEC4 Design Build Operate Contract (DBO)

This combines design, construction, operation and/or maintenance from a single supplier.

• NEC4 Alliance Contract (ALC)

This will be issued in consultation form initially and is intended to suit clients who want to enter into a single collaborative contract with a number of participants.  NEC says that “the basis of the contract will be that all parties work together in achieving Client objectives, and share in the risks and benefits of doing so”.

New features

• New terminology. e. “Employer” replaced with “Client”; “Scope” used in all contracts to describe the work being provided; NEC4 contracts are gender neutral; and “Risk Register” has been renamed “Early Warning Register”.
• Contractor’s proposals. The contracts now include processes for the Contractor to propose a change to the Scope to reduce cost or propose an acceleration.
• Consensual dispute resolution. Introduction of a 4-week period for escalation and negotiation of a dispute prior to formal proceedings.  This is consensual where adjudication applies.
• Finality of assessments (payment). New procedures introduced to reach agreement on the final amounts due under the contract.
• Payment provisions. Approach to periodic payments in short form contract (i.e. application by the Contractor) is now applied to all contracts.
• Additional compensation events. The parties can agree additional compensation events and details can be provided in Contract Data Part One.
• Schedules of Cost Components and Fee have been simplified.

Changes have been made to the core and secondary options with a clear aim to reduce the need for negotiated Z clauses.

New core options

• Bribery and corruption

Incorporates the requirements imposed by the Bribery Act as well as a right to terminate if a corrupt act is carried out.

• Confidentiality

NEC4 contracts (except short ones) will include confidentiality clauses with the purpose being to restrict the disclosure of confidential project information.

• Transfer of benefits (assignment)

Includes a clause that gives either party the right to assign the benefit of the contract.

New secondary options

• Contractor’s design (design and build) option (ECC and ECS only)

Includes provisions specifically to support design and build contracting.  A key element of this is the inclusion of the obligation on the contractor to maintain PI Insurance. Further, the Contractor’s design duty has also been aligned with the industry standard preferred by insurers, that is to use the skill and care normally used by professionals designing similar works.

• Dispute Avoidance Board (ECC)

The ECC now includes a dispute avoidance option (W3), applicable if adjudication does not apply, to refer a dispute to a DAB nominated by the parties when the contract is formed.  The Adjudicator’s Contract has been changed so it can be used to appoint board members and has been renamed Dispute Resolution Service Contract.

• Early Contractor Involvement (ECC)

The ECC now incorporates ECI clauses previously published by NEC in 2015.

• Building Information Modelling (BIM) (ECC)

Includes provisions in ECC specifically to support the use of BIM.

• Undertakings (Collateral warranties)

The Client will have the option to request the various warranties it requires in the form that they require without the need for Z clause amendments.