NEC has issued a third set of amendments for its NEC4 suite of contracts. The latest amendments take account of user feedback, the drive for sustainability, and changes to working practices following the outbreak of COVID-19. In this Law-Now, we outline the key changes that have been introduced and comment on their effectiveness.
Secondary Option X29 - Sustainability
In July 2022, NEC published a separate Secondary Option relating to climate change, numbered X29. This was primarily designed to encourage green working practices in a bid to achieve climate change and biodiversity targets. For our earlier Law-Now on the new Option please click here.
Option X29 has now been incorporated into each main form of contract. The Option allows for ‘Climate Change Requirements’ to be included in the Scope, with the supplier required to prepare a ‘Climate Change Plan’ setting out their strategy for achieving those requirements.
An option to use a Performance Table with financial incentives has also been introduced to encourage the achievement of climate change related performance targets.
Secondary Option X22 - Early Contractor Involvement
The early contractor involvement (Option X22) provisions in the engineering and construction contract have been updated to add flexibility in the Stage One project development phase and clarity over the process to follow if the works do not proceed to Stage Two. There is now a provision enabling the Site Information to be changed during Stage One and where the works proceed to Stage Two, compensation events originally assessed which have reference to the Contract Date are instead assessed with reference to the date of the notice to proceed to Stage Two.
There are also additional provisions which require the Project Manager to issue a notice clarifying the effect of not proceeding to Stage Two whereby the Completion Date is changed to the date of Completion of Stage One and (for Option C contracts) the Prices are changed to match the Price for Work Done to Date at the end of Stage One. This effectively prevents the possibility of delay damages applying or any pain/gain calculation being relevant. The clause has also been updated to clarify that an incentive payment is only due if the works proceed to Stage Two.
Working from home and other locations outside of the Working Areas/Service Areas
With the exception of the professional service main and subcontracts, those contracts which contain a schedule of cost components (“SCC”) or short schedule of cost components (“SSCC”) have been updated to adequately address the trend of people working from home or other locations outside of the Working Areas/Service Areas. This was a common issue facing clients using NEC contracts during the COVID-19 pandemic.
Where the SCC is being used, the Contract Data has been updated to allows users to identify people whose costs can be recovered as part of the Defined Cost, even if they are not normally based within the Working Areas/Service Areas and are working outside of such areas. The SSCC now allows for the cost of people who would normally be based in the Working Areas/Services Areas to be recovered as part of Defined Cost when they are not within such areas provided that they are working on the contract. This allows greater flexibility, especially with an increase over the past few years in the number of people who are working from home. The distinction between directly and indirectly employed staff has also been removed in respect of working location.
Using the supplier’s design
For all main contracts and their corresponding subcontracts, with the exception of the professional and term service contracts, the ability of the Client to use the supplier’s design has been clarified and extended to include documents prepared for design. While this change is helpful, in practice we would still expect to see most clients favour adding more comprehensive provisions in relation to copyright and the use of documents by way of Z clauses.
The dispute resolution option W2 has been updated to clarify that the Adjudicator is to determine the procedure and timetable for adjudication. Previously a period of 14 days from the Referral was stipulated for any further information to be provided to the adjudicator subject to an extension agreed by both the adjudicator and the parties. The new provision will apply to all contracts which include Option Y(UK)2.
Contractor’s liability for design
The engineering and construction short contract and short sub-contract have been amended to enable the Contractor/Sub-contractor’s design obligation to be limited to a ‘reasonable skill and care’ undertaking, together with a requirement to maintain professional indemnity insurance. This reflects market practice and a tightening professional indemnity insurance market where contractors are increasingly reluctant to accept full liability for design.
Limit of liability
A provision has been added to allow a total limit on liability to be included, on an optional basis, in the Contract Data/Subcontract Data in short contract forms aligning them with the longer form versions. This was already in place for the Professional Service Short Contract.
Damage to the Client’s/Service Provider’s property
The Facilities Management short contract has been updated to clarify that the Service Provider is liable for loss or damage to the Client’s property which arises from the Service Provider “Providing the Service”. The Contract Data has been amended to allow for the Service Provider’s liability for such loss or damage to be capped. Similar provisions have been added to the Facilities Management short subcontract.
Payment on termination
The short supply contract has been updated to align with the other forms of contract in relation to the sums due to the Supplier for termination arising from a Purchaser’s default or termination for the Purchaser’s convenience.
While Option X29 is a significant enhancement to NEC4 contracts, the remainder of the changes are more helpful in nature rather than fundamentally changing the NEC4 suite. That said, given that this is now the third compilation of amendments published since the NEC4 suite was launched in June 2017, it is likely that there will be significant inconsistency across NEC4 users as to the exact version of the standard form used to contract with. While no doubt all amendments will ultimately be consolidated in a NEC5 suite (whenever that may be), for the moment all users of NEC4 contracts should continue take great care to be clear on exactly what amendments have been incorporated into any given contract.