NEC ('New Engineering Contract) is a system of contracts created by the UK Institution of Civil Engineers in order to management and administration of the civil engineering, construction and maintenance projects. This essay explains the key features, benefits, and applications of NEC contracts, drawing on various resources to provide a holistic understanding of their significance in contemporary project management.
'The NEC produces standard forms of construction and engineering contract that are used for construction and engineering projects in the UK and internationally. Its suites of contracts also include service and supply contracts for use in relation to the built environment.'1
There have been four editions, the first in 1993, the second in 1995, the third in 2005 and the most recent in 2017.
The first draft of the NEC Contract was published in 1991, and following the initial feedback, the final version of the NEC Contract was published in 1993. Following the publication of the second edition in 19952 and culminating in the development and launch of the NEC3 Contract Suite in 2005, the Hong Kong government decided in 2006 to trial the NEC3 on 30 pilot projects worth £1.2 billion to encourage collaborative working in the construction industry.
NEC3 Contract Suite was joined by the NEC3 Supply Contract (SC) in 2010, the first set of standardised terms designed for local and international procurement of high-value goods and related services including design. Later in 2013, the NEC3 Contract Suite was updated and enlarged to 39 documents including the NEC3 Professional Services Short Contract (PSSC) until its next version was launched in 2017. The NEC4 contract suite was published in June 2017, and included four new contracts:3
- Design, build, operate contract.
- Professional service subcontract.
- Term service subcontract.
- Dispute resolution service contract, which replaces the NEC3 Adjudicator's contract.4
NEC4 suite built new options, such as building information modelling (BIM), early contractor involvement (ECI), collateral warranties, retention bonds, value engineering proposals and dispute resolution boards.5
After receiving considerable feedback and comment, NEC4 Alliance Contract (ALC) were published in 2018 and the NEC4 Contract Suite was updated, in 2019, 2020 and 2023, respectively, in accordance with the feedback received and emerging new practices.
- The first amendments made in January 2019 include modifications to assessing compensation events and procedures on termination.6
- The second set of modifications made in October 2020 cover delay damages, the contractor's liability for loss of or damage to any equipment provided by the Client7, the project bank account mechanism and the payment mechanism under Option Y(UK)1 and Option Y(UK)2, respectively, in order to demonstrate latest case law that states that 'the final date for payment should not be linked to the submission of an invoice from the payer'.8
- Moreover, the changes made in 2023 include modifications to early contractor involvement and the dispute resolution procedures in Option X22 and Option W2, respectively, along with changes that restrict 'a contactor's liability for design in the Engineering and Construction Short Contract (ECSC) and Engineering and Construction Short Subcontract (ECSS) to reasonable skill and care as opposed to the default position under the contract of being liable for any failure'.9 Lastly, these changes also include climate change by adding Option X29 (climate change) to the contract along with the client's right to use the contractor's design.10
Further, it should be mentioned that, in 2021, the NEC4 suite was expanded with the addition of the NEC4 Facilities Management Contracts.
- Alliance Contract (ALC) (new to the NEC4 suite);
- Design Build Operating Contract (DBO) (new to the NEC4 suite);
- Dispute Resolution Service Contract (DRSC) (previously named the NEC3 Adjudicator's Contract (AC));
- Engineering and Construction Contract (ECC);
- Engineering and Construction Subcontract (ECS);
- Engineering and Construction Short Contract (ECSC);
- Engineering and Construction Short Subcontract (ECSS);
- Framework Contract (FC);
- Professional Service Contract (PSC);
- Professional Service Short Contract (PSSC);
- Professional Service Subcontract (PSS) (new to the NEC4 suite).
- Supply Contract (SC).
- Supply Short Contract (SSC).
- Term Service Contract (TSC).
- Term Service Short Contract (TSSC).
- Term Service Subcontract (TSS) (new to the NEC4 suite).
However, even though there were changes in the NEC4 suite, these changes were a result of users' feedback, and the NEC4 suite 'maintains the NEC3 philosophy'11. 'NEC4 updates NEC3, but it does not attempt to re-write it.'12
Key Features
The NEC Contracts differ from other sets of contracts in some aspects.
NEC contracts are known for their structured approach to project delivery. They include different contract types adjusted to the needs of different projects. Each contract type is designed to facilitate various forms of construction and engineering work, including design, build, and management contracts. The flexibility of these contracts provides parties to choose the form which suits their project's specific requirements the best.
The language used in NEC Contracts is very clear language which prevents ambiguity among all parties involved. This is a very notable feature, especially regarding reducing disputes. Moreover, NEC contracts promote the parties to identify and mitigate risks in prothe early days of the projects by encouraging proactive risk management in order to ensure the successful delivery of projects.
Moreover, the NEC Contracts encourage parties to collaborate with each other along with imposing strict deadlines for communicating certain claims and decisions.13 For example, clause 10.2 of the Engineering and Construction Contract (ECC) requires all those involved in operating the contract to act 'in a spirit of mutual trust and co-operation'.
Furthermore, the NEC Contracts provide an approach that supports project programmes to be up to date.14
Benefits of NEC Contracts
As mentioned above, one of the most important advantages of the NEC Contracts is their ability to provide a collaborative system by promoting mutual trust and respect and this approach is essential in reducing conflicts and ensuring the delivery of the projects on time. The duty to 'act in a spirit of mutual trust and co-operation' was first introduced in 1995 into the NEC2 suite and 'is fundamental to and underpins the NEC contracts and philosophy.'15
Furthermore, the system that the NEC Contracts are providing requires regular communication and reporting between the parties, which results in a transparent relationship. NEC4 contracts are designed to provide proactive project management, 'rather than determine who is at fault only when a dispute arises'16. One of the most important aspects of communication under an NEC contract is the early warning procedure, such as clause 15 of the ECC.17
'Examples of other matters requiring prompt notification are as below:
- If either party becomes aware of an ambiguity or inconsistency in the contract documents (ECC clause 17.1).
- If either party becomes aware that the Scope includes an illegal or impossible requirement (ECC clause 17.2).
- If the Contractor or the Supervisor discovers a Defect (ECC clause 43.2).
- The occurrence of a compensation event (ECC clauses 61.1 and 61.3).'18
NEC4 contracts, similar to the NEC3 contracts, are written in a plain English style in the present tense, avoiding jargon.19 Additionally, another significant benefit of this kind of transparent relationship is accountability which ensures that problems are addressed in a correct manner.
For instance, as confirmed by the Scottish case of City Inn v Shepherd [2007] CSOH 190, a compensation event notification is a strict obligation for an extension of time and to additional payment and it could be lost if the Contractor fails to notify within eight weeks of becoming aware of the compensation event.20
Furthermore, the NEC Contracts use a risk register as a risk control technique which now with the NEC4 Contract suite introduced is called 'Early Warning Register'.21 The specifics of this system are explained in clause 11.2(8) of the ECC.22 The risks that are identified are managed through a system called early warning meetings, and the first early warning meeting would be held within two weeks, and regularly afterwards until a solution is reached.23
The management of identified risks is conducted through the system of early warning meetings (these were called risk reduction meetings in NEC3). The first early warning meeting is held within two weeks of the starting date, with later meetings being held at regular intervals until Completion.
Lastly, the NEC Contracts suite can be customized in accordance with needs of the specific projects. This adaptable and flexible nature of the NEC Contracts provides them to be used in a larger scale, such as modest civil engineering projects or a large infrastructure initiative.
Applications of NEC Contracts
Even though the NEC Contracts were criticised as 'not tried and tested'24, at the moment, NEC contracts are used in a wide spectrum of sectors, including and not limited to, civil engineering, construction, and infrastructure development projects, for example from highways and railways to building developments and public works.
The first NEC pilot project was Fuk Man Road project, and due to the success of this and other projects, the Hong Kong government adopted NEC3 as the default contract for its £7 billion a year public-sector works programme in 2016.
NEC3 contracts were already used extensively in England and Wales, and major clients, such as Highways England, National Grid, the Environment Agency and Defence Infrastructure Organisation 'fully embraced the NEC4 suite'.25 All the NEC4 contracts can be used in the United Kingdom and also internationally.26
'As with NEC3, the NEC4 suite has been endorsed by the Government Construction Board (formerly Construction Clients' Board), which recommends that public sector organisations use the NEC contracts and in particular the NEC4 contracts where appropriate, when procuring construction.'27
As of today, NEC contracts become more and more popular with every passing day and NEC has become the default in the United Kingdom and Hong Kong for public-sector works, services and supplies. Furthermore, NEC contracts have also been successfully applied in Australia, Ireland, the Netherlands, New Zealand, Peru, the Philippines, South Africa, UAE, and many more. In Antwerp, Belgium, NEC4 contracts are being used to procure over half of a new €3.5 billion ring road.28 They are also increasingly being used in the private sector.
ECC is the most common and popular NEC form of contract, however, practitioners may also encounter Engineering and Construction Subcontract (ECS) and Professional Services Contract (PSC).29
Conclusion
In conclusion, NEC contracts provide a proactive approach to the management of the construction and engineering projects via focusing on collaboration, clarity, and flexibility. Through this progressive approach, NEC contracts create a 'a way of doing things' that is based on efficiency and cooperation. As the needs of modern projects continue to develop, NEC contracts, due to its nature, will probably stay relevant and effective.
Footnotes
1 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 1
2 NEC Engineering and Construction Contract (ECC) together with a new Professional Services Contract (PSC), Adjudicator's Contract (AC) and a back-to-back set of short forms and sub-contracts (https://www.neccontract.com/why-choose-nec/history)
3 NEC4 Alliance Contract, Practical Law UK Practice Note w-016-8453, page 2
4 NEC4 Alliance Contract, Practical Law UK Practice Note w-016-8453, page 3
5 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 5
6 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 2; NEC4 Design Build and Operate Contract, Practical Law UK Practice Note w-010-2935, page 3
7 NEC4 Design Build and Operate Contract, Practical Law UK Practice Note w-010-2935, page 3
8 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 2
9 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 3
10 NEC4 Design Build and Operate Contract, Practical Law UK Practice Note w-010-2935, page 3
11 NEC4 suite of contracts: key changes, Practical Law UK Practice Note w-009-0797, page 3
12 NEC4 suite of contracts: key changes, Practical Law UK Practice Note w-009-0797, page 4
13 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 3
14 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 3
15 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 9
16 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 11
17 NEC: working under an NEC contract, page 9
18 NEC: working under an NEC contract, page 10
19 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 11
20 NEC: working under an NEC contract, page 11
21 NEC: working under an NEC contract, page 15
22 NEC: working under an NEC contract, page 15
23 NEC: working under an NEC contract, page 15
24 Anglian Water Services Ltd v Laing O'Rourke Utilities Ltd [2010] EWHC 1529 (TCC)
25 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 18
26 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 12
27 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 6
28 NEC4 suite of contracts, Practical Law UK Practice Note Overview w-008-5047, page 19
29 NEC contracts toolkit, Practical Law UK Toolkit w-008-8141, page 3
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