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Introducing the new NEC4 Facilities Management Contract (FMC) Suite

Most people working in the Construction and Engineering sector will be familiar with the suite of NEC contracts. Then known as the 'New Engineering Contract,' the first NEC contrac...

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Date: 30/03/2021

Authors:

Tim wright colour 2018

Tim Wright

Partner

Most people working in the Construction and Engineering sector will be familiar with the suite of NEC contracts. Then known as the 'New Engineering Contract,' the first NEC contract was published by the Institution of Civil Engineers in 1993 - a radical departure from existing building and engineering contracts, written in plain language and designed to stimulate rather than frustrate good management. Since then, the NEC contracts have been regulated updated and their scope expanded to meet the procurement needs of the sector. The current contract suite is NEC4 and covers the full array of Works, Services and Supply, ranging from a major framework to small-scale projects.

However, the NEC4 suite did not specifically cater to the procurement of Facilities Management services. Whilst NEC4 Term Service Contract and its short/subcontract versions could be adapted for Facilities Management, this was often felt to be suboptimal because the templates did not provide procedures needed for particular FM services.

FM-specific contract templates

To fill this gap, NEC partnered with the Institute of Workplace and Facilities Management and recently launched a new pair of contracts specifically for procuring Facilities Management services: the NEC4 Facilities Management Contract (FMC) and the NEC4 Facilities Management Subcontract (FMS), plus short companion versions of each, as well as user guides and flow charts, designed for use in all types of facilities management procurement and delivery strategies.

Key features

The key features of this FMC Suite are described in detail in a white paper published by the NEC Users’ Group[1] which describes how the contracts have been designed, based on the following principles:

  • They stimulate good management of the relationship between the two parties to the contract and, therefore, of the work involved in the contract.
  • They can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location around the world.
  • They are clear, simple and written in plain English, using language and a structure which is straightforward and easily understood.

The NEC4 contracts also provide for the parties to act, ‘in a spirit of mutual trust and co-operation,’ rather than the more adversarial ‘us and them’ approach often found in more traditional contracts.

Key features of the FMC suite include:

Secondary Options

The contracts are modular, with a range of secondary options available for selection which allows the client to tailor the contract to suit its specific needs and allocate risk appropriately without the need to amend the standard contract. Secondary options include multiparty collaboration, BIM and extending the service period, as well as dealing with a change in control of the service provider and client termination.

Early warnings

The FMC suite adopts the NEC4 ‘early warning’ process - if either party becomes aware of any matter which could affect time cost or quality, it is required to notify the other party immediately, for prompt discussion at an early warning meeting to decide how best to mitigate the risk.

Change control

The FMC suite provides a clear process for evaluating cost and, where appropriate, time implications of compensation events including arising from client scope changes, with a view to agreement within a short period. Costs are continually updated and agreed as changes and events happen, so that there are no surprises at the end of the contract.

Service Provider’s proposals

The service providers may propose a change to the scope which reduces cost, which the client can accept or reject, or request a quotation prior to making a decision. The service provider shares in cost savings opportunities it initiates, either through the target share or by recovering a percentage of the saving. A secondary option allows the service provider to identify opportunities to change the scope which, while it may increase the price of the service, would reduce the cost of an asset over its whole life. Again, through the procedures in this option, both parties can share in the saving created.

Service Orders

The client can use Service Orders to call off work identified in the scope as and when required, e.g. for reactive maintenance. Work called off under a Service Order is identified at tender stage, and rates and prices for the work included in the price list, making it a simple process to order and price the work required.

Project Orders

There is also a secondary option for Project Orders, allowing the client to instruct additional work which has a level of complexity, coordination and risk which requires a programme for its execution and which may include changes or additions to the scope and the price list, such as the refurbishment of a lift, the re-wiring of a laboratory or classroom, the work involved in bringing a void property back into use, or the creation of a new exhibition area. Additional incentives, both positive and negative, can be included in Project Orders to encourage the service provider to complete the work on time.

Service Provider’s plan(s)

The service provider is required to provide a detailed plan of how it will provide the service. The plan is a key management tool which has to be kept updated, so that the parties know when and how the service provider will provide the service. In addition to the plan, the client can also require mobilisation and demobilisation plans to be produced and for the service provider to provide details of how they will provide business continuity in the event of disruption to their normal business operations.

Service Failures

A service provider is required to provide the service in accordance with the scope, part of which operates as a service level agreement, providing a clear, robust and flexible method of driving achievement of the agreed service levels, with clear consequences and corrective measures.

Performance Table

A Performance Table is used to incentivise the service provider financially, both positively and negatively to achieve or better the service levels. There is complete flexibility how the Performance Table is filled out, allowing the client to identify performance targets, levels, values and timing of assessment, in order to drive key aspects of service delivery.

Design

The FMC Suite includes a secondary option to be used where the service provider undertakes design as part of the service – it deals with the issue and acceptance of any such design, liability which is set at a standard of reasonable skill and care, ownership and use and the requirement for professional indemnity.

Pricing options

The FM suite provides three main pricing options:

Option APriced contract with Price List

This option allows for a combination of lump sum and remeasurement of rated items. There is complete flexibility in how the price list is created allowing the parties to determine the level of detail and manner in which activities are paid for.

Option CTarget contract with Price List

This option provides a target cost for the services on a lump sum and remeasurement basis. The service provider is paid for the services on a cost reimbursable basis (Defined Cost plus Fee), with review dates to compare the costs incurred to the target cost to assess the service provider’s financial performance. Savings made or overspend incurred is shared between the parties on a pre-agreed percentage split, which is intended to incentivise performance and encourage collaboration.

Option ECost reimbursable contract

Under this option, the service provider is paid on a cost reimbursable basis. This provides complete flexibility for the client to develop and change the service required throughout the contract period.

FM best practices

The FMC Suite was formally launched on 26 January 2021. The new contract templates are aligned to facilities management concepts and practices, with a view to adoption by the FM industry. Whilst the contract templates may not be relevant to every facilities management procurement, such as the enterprise-wide global master services arrangements put in place by large enterprises, international banks and the like, the FMC Suite is likely to be welcomed by FM professionals as a useful tool in delivering better facilities management procurement and management outcomes.

Please contact the author or your usual Fladgate contact if you are embarking on an FM procurement project and would like to discuss using the FMC Suite or other contractual forms.

[1] https://www.neccontract.com/getattachment/About-NEC/News-Media/NEC-launches-new-NEC4-facilities-management-forms/AD9853-NEC-Facilities-Management-Whitepaper-2021-25-1-21-1.pdf?lang=en-GB

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