New Engineering Contract (NEC)

The New Engineering Contract (NEC) is a formalised system created by the Institution of Civil Engineers that guides the drafting of documents on civil engineering and construction projects for the purpose of obtaining tenders, awarding and administering contracts. As such they legally define the responsibilities and duties of Employers (who commission work) and Contractors (who carry out work) in the Works Information. The contract consists of two key parts the Contract Data part one (Data provided by the Employer) and Contract Data part two (Data provided by the Contractor). The contract consists of two key parts the Contract Data part one (Data provided by the Employer) and Contract Data part two (Data provided by the Contractor). Several approaches are included making it a family of options. It is used in the UK and internationally in countries including New Zealand, Australia, Hong Kong and South Africa.

Synonyms

Construction Contracts, NEC Engineering and Construction Contract, NEC1, NEC2, NEC3, NEC4.

Definition

The brief leading to the preparation of the initial consultative document of the contract was to prepare a radical new style of contract form. The NEC family as a whole certainly achieved that aim in that it is intentionally different from other forms of construction contract available at that time. In order to comply with this desire for a family of contracts that would be seen as radical, the drafting committee developed a number of aims and objectives which they sought to introduce into the form including the following:

Flexibility

One of the principle aims was to make the contracts as flexible as possible, thereby allowing a number of provisions.

Clarity & Simplicity

One of the more radical aims was to produce a contract that was clear and simple in its format and readily understandable by ordinary construction professionals, as opposed to being a contract that required a degree of legal ability in order to be able to understand the rights and obligations of the parties.

Stimulus to good management

Providing a contract that acted as a stimulus to the use of good project management techniques was central to the philosophy behind the drafting of the original contract and has been improved through the revisions. These procedures are designed to contribute to the forward-looking management philosophy, which is designed to manage problems rather than to simply allow them to degenerate into disputes.

Other characteristics

The family provides for different methods of exerting financial control through the selection of the preferred main option. The principle two methods used in the PSC are by an activity schedule (being provided by the tendering consultant before the Contract is formed) or by a time charge. In both cases the primary use of the method is only for assessing payments.

Motivation & Background

Originally contracts in the civil engineering and construction industries were bespoke and drafted by Chancery pleaders using their knowledge of leases rather than building processes. In 1879, Royal Institute of British Architects for construction projects created RIBA forms which lead to the Joint Contracts Tribunal, JCT forms. For civil engineering the need for a formalized approach to contracts led the Institution of Civil Engineers to produce the ICE formalized set of conditions of contract. In 1986, the ICE commissioned the development of a new form of contract as it was felt that there was a need for a form that had clearer language, clearer allocation of responsibilities and reduced opportunities for contractual “gamesmanship”. In 1991, this resulted in a consultative form of the New Engineering Contract form of contract. The first edition was published in 1993. Wider use of the NEC was recommended by the Latham Report in 1994.

NEC's history started in 1986 when Martin Barnes was commissioned to start drafting a contract to stimulated good project management. The first edition of NEC was launched in 1993. NEC2 arrived two years later, in 1995. NEC2 was used to build the High Speed 1 railway, between London and the Channel Tunnel. The NEC3 suite was launched in 2005 and it was fully revised in 2013 - NEC's 20th anniversary. This suite was used in projects such as Crossrail, London 2012 Olympics, Halley VI, and the Tin Shui Wai Hospital in Hong Kong.

NEC3 was endorsed by The Construction Clients' Board (formerly Public Sector Construction Clients' Forum), Crown Commercial Services, The Facilities Management Board of the Cabinet Office UK, The South African Construction Industry Development Board, The International Organisation for Standardisation (ISO), The Association for Project Management (APM) and The British Institute of Facilities Management (BIFM).

The Hong Kong government decided to use NEC3 contracts generally for all government projects tendered in 2015/16. After a series of successful NEC3 projects in the region, the Hong Kong government announced in November 2016 that the NEC contract suite will be used for all future public works projects as far as practicable.

Structures

Principle

The NEC is a family of standard contracts, each of which has these characteristics:

• Its use stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract.
• It can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location.
• It is a clear and simple document - using language and a structure which are straightforward and easily understood.

The NEC3 complies fully with the Achieving Excellence in Construction(AEC) principles. The Efficiency & Reform Group of The UK Cabinet Office recommends the use of NEC3 by public sector construction procurers on their construction projects.

Precision(Options)

The NEC contracts now form a suite of contracts, with NEC being the brand name for the "umbrella" of contracts. When it was first launched in 1993, it was simply the "New Engineering Contract". This specific contract has been renamed the "Engineering and Construction Contract" which is the main contract used for any construction based project. It now sits alongside a number of other contracts that together should mean that the NEC suite is suitable for what ever stage of a lifecycle the project is at and for any party within a project. The contracts available within the suite are:

Engineering and Construction Contract (ECC)

Suitable for any construction based contract between an Employer and a Contractor. It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil & gas, etc. Within the ECC contract there are six family level options of which the Employer will choose what she/he deems to be the most suitable and give her/him the best option/value for money on that project:

• Option A: Priced contract with activity schedule
• Option B: Priced contract with bill of quantities
• Option C: Target contract with activity schedule
• Option D: Target contract with bill of quantities
• Option E: Cost-reimbursable contract
• Option F: Management contract

These options offer a framework for tender and contract clauses that differ primarily in regard to the mechanisms by which the contractor is paid and how risk is allocated/motivated to control costs.

The core clauses (of the main option listed above) are used in conjunction with the secondary options and the additional conditions of contract. The Efficiency and Reform group of The Cabinet Office in the UK (formerly the OGC) has published generic public sector Z-clauses for the use with NEC3 contracts].

The clauses of these options have been be adapted for simpler less risky work (short contracts), for use as subcontracts, and for professional services such as design as below.

The Engineering and Construction Subcontract Contract (ECS)

Very similar in detail and complexity of contractual requirements to the ECC contract above, but allows the contractor to sub-let the project to a subcontractor imposing most of the clauses that she/he has within her/his headline contract. There is very little difference between the ECC and the ECS, other than the names of the parties are changed (contractor and subcontractor)and some of the timescales for contractual responses are altered to take into account the timescales required in the ECC contract.

The Engineering and Construction Short Contract (ECSC)

This is an abbreviated version of the ECC contract and most suitable when the contract is considered "low risk" (not necessarily low value) on a project with little change expected. This contract is still between the employer and contractor but does not use all of the processes of the ECC making it simpler and easier to manage and administer.

The Engineering and Construction Short Subcontract (ECSS)

Allows the contractor to sub-let a simpler lower risk contract down the line to a subcontractor. It is back-to-back with the ECSC but is frequently used as subcontract when the main contract is under the ECS.

The Professional Services Contract (PSC)

This contract is for anyone providing a service, rather than doing any physical construction works. Designers are the most obvious party that fit into this category. Whilst they are producing a design for an employer or contractor, they would sign up and follow the clauses within the PSC. Most of the clauses within this contract are the same or similar to those in the main ECC contract, so that all contractors, designers and subcontractors have pretty much the same obligations and processes to follow as each other.

The Professional Services Short Contract (PSSC)

This was added to the family in April 2013 and was co-developed with the Association for Project Management. It is for simpler less complex assignments than the PSC, such as the appointment of small team for managing an ECC contract on the Employer's behalf. E.g. the Project Manager and Supervisor. It is frequently used as a subcontract to the PSC for design work.

Framework Contract (FC)

Parties enter into a "framework" of which work packages will then be let during the life of that framework. Any individual projects will then be awarded using one of the other contracts within the suite, meaning that the parties follow the headline clauses within the framework contract (which is a fairly slim contract) and then the individual clauses within the chosen contract for that package. Different work packages can be let using different contracts during the life of the framework.

Term Service Contract (TSC)

For parties on a project that is operational or maintenance based, e.g. maintaining highway signage, where the contract is to ensure that a certain standard is maintained. This contract is not generally used for constructing new works, but can include some amount of betterment. There is also a "Term Service Short Contract" where the project is a relatively low risk project and/or the work is primarily re-active. It is an abbreviated version of the main TSC.

Supply Contract/Short Supply Contract (SC/SSC)

These contracts were launched in 2010. This is for a supplier of supplies or goods to a project, and puts extra contractual requirements on them during their procurement/manufacture period. The Supply Contract is for big bespoke items i.e. designed and manufactured specifically for that contract, with the Short Supply Contract potentially being for more run of the mill / commoditised items on a project. Neither of these contracts cover working on a Site. I.e. as written they are not 'supply and install' contracts.

Dispute Resolution Services Contract (DRSC) - previously Adjudicator's Contract

If there is a dispute between the parties on a project then the Adjudicator will follow the clauses within this contract in order to come to a decision.

Design Build and Operate (DBO)

The NEC4 Design, Build and Operate Contract (DBO) allows the procurement of a more integrated whole-life delivery solution. It combines responsibility for design, construction, operation and/or maintenance, procured from a single supplier.

It can include a range of different services to be provided before, during and after engineering and construction works are completed.

Alliance Contract (ALC)

The NEC4 Alliance Contract (ALC) will be published initially in a consultation form. It was created to support Clients who wish to take a step forward by fully integrating the delivery team for large complex projects.

The ALC should be used to engage in a single collaborative contract with a number of participants in order to deliver a project or programme of work. 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.

Guidance Notes and Flowcharts

For each of the different contracts listed above each comes with its own set of guidance notes and flowcharts which should aid understanding of the intent of the drafted clauses. The guidance notes expand on each clause to give extra substance and intent of the original drafters as to how a clause should be understood and interpreted. The flowcharts then map out each of the main processes within each contract and demonstrate how it should operate and what to do next if a party has or has not carried out the next contractual action.

Generality

When the third edition of the NEC family of contracts was published in 2005, all of the 23 documents in the box set carried an endorsement from the UK’s Office of Government Commerce ( OGC ) on their title pages and back covers: the use of the family was recommended to all public sector construction procurers. The recommendation was linked to a statement that such procurers must satisfy the objectives of the government’s Achieving Excellence in Construction ( AEC ) principles. These principles had been launched in March 1999 with the aim of improving the performance of central government departments, executive agencies and non-departmental public bodies as clients in the construction industry. In the UK, depending on the state of the economy, these procurers account for between 35% and 40% of all new build, refurbishment and maintenance work carried out by the construction industry. It is difficult to find any literature which lists the principles to which the OGC refer. A list of key factors has been published, which can be summarised as:

• the establishment of integrated project teams;
• the use of short and effective lines of communication;
• the consideration of design, construction, operation and maintenance as a whole;
• effective risk management;
• effective value management;
• the use of sound project management techniques; and
• creating partnering and long-term relationships;

Many of these matters have their roots in Sir Michael Latham’s 1994 report Constructing the Team and Sir John Egan’s report Rethinking Construction (The Construction Task Force, 1998). It is fair to say that both of these reports (especially the former) influenced the development of the NEC family of contracts. The result was the endorsement by the OGC. The latest contracts in the family published in December 2009 also carry the endorsement; the only difference is that it is now given by the Construction Client’s Board (formerly known as the Public Sector Construction Clients’ Forum). Further information about the AEC principles was available on a UK Government website until October 2011, when the website was closed down. This information is now held by the National Archives.

Comparisons

The following demonstrates the differing approaches to drafting in the NEC and ICE forms of contract using the illustration of circumstances when the contractor is entitled to additional time and cost for physical conditions.

NEC Engineering and Construction Contract Second Edition Clause 60.1 (12)

The Contractor encounters physical conditions which

• are within the site.
• are not weather conditions and
• which an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for her/him to have allowed for them.

ICE Conditions of Contract Sixth Edition Clause 12(1)

If during the execution of the Works the Contractor shall encounter physical conditions (other than weather conditions or conditions due to weather conditions) or artificial obstructions which conditions or obstructions could not in her/his opinion reasonably have been foreseen by an experienced contractor the Contractor shall as early as practicable give written notice thereof to the Engineer.

Application

Guidance Notes and Flow Charts are published by the ICE. These notes are supplemented by the Frequently Asked Questions sections of the NEC website. Prospective users of the NEC3 contract are encouraged to study the FAQ's in order to avoid unintended contract provisions. The often unintended Option C scenario where a Contractor is paid monies in excess of the Target Cost plus maximum share provisions is specifically not addressed in the guidance notes / Frequently Asked Questions. Other common misinterpretations are minutes of meetings as communications, deleted work and paying for correcting defects. Employers often use the additional conditions of contract (Z-clauses) to amend or delete contract provisions relating to these items.

Future Directions

There have been four editions, the first in 1993, the second in 1995, the third in 2005 and the most recent in 2017. The NEC3 was launched in 2005 and it was amended in April 2013. NEC4 was announced in March 2017 and has been available since June 2017. This new edition reflects procurement and project management developments and emerging best practice, with improvements in flexibility, clarity and the ease of administration. It also introduces two new contracts: NEC4 Design, Build and Operate (DBO) and NEC4 Alliance Contract (ALC). The NEC contract would greatly benefit from a digital and computational upgrade that can be self-executing. For current work on creating a smart NEC contract, please refer to the Construction Blockchain repository

Cross-References

• Joint Contract Tribunal (JCT);
• CM/MC