New entitlements and potential pitfalls for Contractors in NEC4


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For further information, please contact Alan Woolston, Partner, Fladgate LLP (awoolston@fladgate.com)


 

Contractors, especially those to be engaged on public projects, may soon be working under new NEC4 standard form contracts introduced in June 2017.

The new contracts, published by the Institution of Civil Engineers (ICE), replace the 12 year old NEC3 suite. The changes are intended to support users’ changing requirements, stimulate good project management and improve clarity whilst preserving the layout, terminology and processes of the existing contracts.

Updates to NEC forms are important as this contract is endorsed for public sector use. NEC forms have been used by the Olympic Delivery Authority, Network Rail, Crossrail and Highways England and all contracts let under phase 1 of the High Speed Two (HS2) project are from the NEC suite.  As the UK is currently developing over £500 billion worth of major infrastructure projects, it is likely that many of these schemes will be procured under NEC forms.

Whilst many amendments should not be controversial, such as those concerning bribery, confidentiality and collateral warranties, NEC4 introduces some important new provisions, many of which Contractors should welcome:

  • Measures are introduced to provide Contractors with certainty regarding their programme for the works. The programme will now be treated as accepted if the Project Manager does not respond within a set timescale (31.3). The programme is also streamlined by removing the requirement to show implemented compensation events (formerly at 32.1). These changes will be welcomed by Contractors as they should save costs and administration.
  • Payment applications from the Contractor have greater importance under the new forms. If a payment application is not made, the amount due is the lesser of the Project Manager’s assessment and the amount due at the previous assessment (50.4). As a Contractor may not be paid in the absence of a valid application, it is even more important to ensure that applications are made promptly.
  • On cost based contracts (main options C, D, E and F), the Contractor has a new right to seek review and acceptance of its Defined Costs (50.9). The Project Manager is either to confirm acceptance or advise of any errors within 13 weeks, failing which the Contractor’s Defined Costs and Disallowed Costs are treated as accepted.
  • Contractors should also welcome the ability to claim costs where the Project Manager notifies that a quotation for a proposed instruction is not accepted. The new compensation event (60.1(20)) reimburses the Contractor, especially where the Project Manager requests numerous quotations, not all of which are accepted.
  • New measures provide for the finality of payments at the end of a project and encourage parties to work together to agree the final amount due (53). The Project Manager is to issue its final assessment four weeks after the Defects Certificate, failing which the Contractor may issue its own assessment. An assessment becomes conclusive of the amount due unless challenged.
  • Tiered dispute resolution introduces a four week period of escalation and negotiation of a dispute before any formal proceedings are commenced (W1). An option allowing the use of dispute avoidance boards is also available (W3).
  • NEC contracts have proven popular with public sector clients due to their emphasis on collaboration and shared understanding. These principles clearly underline the new secondary option (X21) which incentivises the Contractor through a gain mechanism to propose scope changes that would reduce the cost of an asset over its entire lifecycle.

NEC4 seeks to build on previous versions and the approach adopted has been described as evolution, not revolution. However, there are some material differences between the new and old forms, with new provisions being introduced that Contractors should welcome.  Some Clients may seek to soften these new entitlements through bespoke contract amendments which makes scrutinising any proposed changes even more important.

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