A brief review of NEC

03/05/24

Newsletter #5:

Catching up with NEC knowledge is a challenge, so for the next couple of weeks we are sharing our thoughts and information behind NEC, its evolution, and key components you need to know about.

To kick things off we discuss the origins on NEC and the changes that have brought it up to todays version of NEC4.

Let’s begin…

1 General

In the dynamic world of construction and project management, the evolution of NEC contracts from their inception to the current NEC4 suite encapsulates a journey of continuous refinement and strategic adaptation. This journey is rooted in the principles of fostering good management practices, supporting innovative procurement approaches, and facilitating the application of NEC contracts across various markets and sectors.

The genesis of NEC contracts can be traced back to the publication of "Constructing the Team – The Latham Report” in 1994, a seminal review that advocated for a shift towards more collaborative and effective procurement and contractual arrangements in the UK construction industry. Following the recommendations of this review, the first NEC contract emerged, embodying a revolutionary approach to managing construction projects that emphasised simplicity, clarity, and flexibility.

Over the years, subsequent editions of NEC contracts have been launched, each building upon the feedback and developments in the construction industry. The NEC3 edition, introduced in 2005, was particularly noteworthy for instilling effective project management procedures within the contracts themselves, necessitating proactive risk and change management as well as the maintenance of up-to-date project programmes. This edition also offered a diverse range of pricing options, allowing Clients greater flexibility in risk allocation and fostering a collaborative management of risks.

The transition to NEC4 in 2017 marked a significant milestone, encapsulating the essence of evolution rather than revolution. It was driven by three key objectives:

• To stimulate better contract management

• To support new procurement approaches

• To facilitate broader application of NEC contracts

Among the notable features of NEC4 is the inclusion of new contract forms such as the Design Build and Operate Contract (DBO), which extends the applicability of NEC4 to services as well as construction. Moreover, NEC4 introduced refined dispute resolution procedures and enhanced the flexibility of secondary option clauses, further encouraging a culture of collaboration and proactive problem-solving.

Comprehensively understanding and managing NEC4 contracts necessitates a thorough grasp of various procedural guidance volumes provided as part of the NEC suite. These volumes guide users through:

• Establishing procurement and contract strategies (Volume 1)

• Preparing NEC contracts (Volume 2)

• Selecting suppliers (Volume 3)

• Managing contracts (Volume 4)

Each volume is tailored to specific contract types, ensuring detailed and relevant guidance.

For practitioners looking to dive deeper into the specifics of NEC4 contracts, a wealth of resources is available directly from NEC, including official guidance documents, case studies, and training materials.

The NEC4 contract is a comprehensive framework designed to facilitate the successful execution and management of construction projects. It comprises several key components that guide General provisions, the Contractor’s Main Responsibilities, Time, Quality Management, Payment, Compensation Events, Title, Liabilities and Insurance, and Termination. Each of these sections encapsulates fundamental principles and obligations that govern the contractual relationship between parties.

• General: This section sets the contractual scene, defining the terms, roles, and scope of work. It serves as the foundation upon which the contract is built, ensuring all parties have a common understanding of the framework within which they are operating. Key clauses include the identification and definition of terms which flesh out critical concepts such as Completion, Defects, and the roles of the Contractor and Project Manager.

• The Contractor’s Main Responsibilities (Clause 20 onwards): Here, the Contractors obligations regarding the quality of work, adherence to specifications, and the responsibility for providing the works according to the contract are outlined. This ensures the Contractor fully understands their role and the standards to which they must adhere.

• Time (Clause 30 onwards): These clauses emphasise the importance of scheduling and timely execution of works. They mandate the submission of an initial programme (often termed a Clause 31 programme) and its regular updates (often called Clause 32 programmes), promoting transparency and proactive management of any changes affecting project timelines.

• Quality Management (Clause 40 onwards): This section specifies requirements for managing and assuring quality throughout the project lifecycle, underscoring the Contractors duty to meet stipulated quality standards.

• Payment (Clause 50 onwards): Payment clauses detail the mechanism for assessing and valuing the work done, including the timing and conditions for payments, thus ensuring financial clarity and fairness for all parties involved.

• Compensation Events (Clause 60 onwards): Perhaps one of the most distinctive features of NEC contracts, this mechanism provides a structured approach to managing and compensating for events that might change the contract Scope, cost, or completion date.

• Termination (Clause 90 onwards): The conditions under which either party may terminate the contract are laid out here. This includes provisions for handling defaults, insolvency, and other termination scenarios, offering a clear route for contract dissolution if necessary.

Each of these components is structured to promote collaboration, transparency, and efficiency. The NEC4’s approach to contract management recognises the dynamic nature of construction projects, offering a flexible framework adapted through Mutual Trust and Cooperation (Clause 10.2).

We hope you enjoyed this introduction into the background of NEC, get in touch if you would like to know more!