Core, main and secondary. This sounds like a menu, well for new engineering contracts (NEC) at least. But how do you decide which clauses are necessary, and which clauses are simply there to take up space? We have compiled our very own crib sheet of points to consider when drafting clauses.
Tip 1: The Secondary Options Clauses Are... Secondary
Often parties include all the clauses under this heading, without realising that they are not essential, and not every clause is relevant to the parties.
When acting for the Employer, we include secondary option clauses such as X8 (undertakings to the Client or others) and X9 (transfer of rights).
When acting for the Contractor, we include secondary option clauses such as X15 (the Contractor's design) and X18 (limitation of liability).
Tip 2: Mutual Trust and Cooperation Is Not Defined
Although NEC is principally based on the concept of "mutual trust and cooperation", it does not define this. So how do parties know if they have acted in such manner and complied with the contract?
It is better to include this within the "Definitions" clause, to provide clarity to the parties as to how this can be achieved.
Tip 3: Consistent Definitions
This may not appear to be an issue, but what happens when the contract has a particular definition for the "completion date", but the warranty has another? Which definition do you use if there is no priority clause in the contract?
To avoid confusion, any key terms MUST be defined in the "definitions" clause, and MUST be used consistently throughout the contract, and any associated documents, such as warranties.
Tip 4: 6 Payment Options A-F
There are six main options (A-F) for different payment mechanisms under the Engineering and Construction Contract.
Parties should choose carefully between priced contracts, target contracts, cost reimbursable contracts and management contracts. Under target contracts, both the Employer and Contractor share any loss or gain (known as the gain/pain mechanism), whereas for priced contracts they do not.
Parties should also choose whether they want a contract with an activity schedule, or a bill of quantities. Although both list the activities the Contractor is expected to carry out, a bill of quantities is prepared by the Employer and is more comprehensive, in contrast to an activity schedule, which is prepared by the Contractor. If an activity schedule is used, the Contractor accepts the risk.
Tip 5: Contract Data is Split in Two
Unlike JCT contracts, the Contract Data in NEC is split into two parts. The first part is provided by the Client and sets out information such as: the options being used, details of the works and parties employed by the Client, project timescales, insurance, payment, quality management, and compensation events. The second part is provided by the Contractor and includes the Contractor's key persons, payment provisions, the Contractor's main responsibilities and timescales.
Although NEC Contract Data may include two parts and appears to be set out in a clear format, it is not as detailed as the contract particulars in JCT contracts, which cover suspension and retention.
Tip 6: Project Managers are Stars of the Show
Engaging an experienced Project Manager cannot be emphasised enough. Failure to do so, could leave to a disaster similar to Grenfell Tower where the Project Manager was unaware of some of his responsibilities.1 It is vital that any Project Managers appointed, have the requisite skills to successfully manage the development of a project from start to finish. This is because NEC heavily relies on the Project Manager to carry out tasks, including but not limited to:
- Decision-making within set deadlines - Reviewing and determining whether the Contractor's programme and proposals are appropriate for the project; approving the appointment of sub-contractors; dealing with delays; determining if the works comply with the requirements.
- Delegating actions and giving instructions.
- Preparing documents, such as the early warning register.
- Assessing and calculating the payments due to the Contractor; and
- Certifying take-over of the whole/ a part of the works.
Key skills to look for when appointing a Project Manager include leadership, organisation, proactivity, negotiation, communication, and risk management, to name a few.
Tip 7: Records, Records, and more Records
And no, we do not mean vinyl records. Keeping records of the development is an essential part of any contract for both the Contractor and the Project Manager, to support any statements made by either party, or avoid any latter disputes. Records may include any emails, letters, attendance notes, photographs, bank statements, videos, quotations, and spreadsheets, amongst other items.
It is more important for the Contractor to keep records since the Project Manager may request an inspection of those records at any time.
Examples of when records may be required include, but are not limited to:
- Any payment applications made by the Contractor, to show the required works have been carried out. This includes proof of any reimbursable payments to subcontractors or other parties.
- The occurrence of take over. Without proof, it may be difficult to establish if take over has occurred, and who is liable for risk; and
- Giving early warnings to the Project Manager of any events that may delay the completion of the project.
Tip 8: Execution
This is often an overlooked aspect of contracts. However, it is important to be aware that where a contract is signed under hand, parties have 6 years to bring a claim against the other party under the contract. However, where the contract is executed as a deed, parties have 12 years to bring a claim against each other under the contract.
There are also greater formalities that need to be followed when a contract is executed as a deed, and this is specific to each matter. For example, execution may require the Contractor to sign it and have it witnessed. The same would apply to the Employer too. Alternatively, two directors may sign the contract, or one director and the company secretary may sign it, or a company seal may be used.
Tip 9: The Act... The Housing Grants, Construction and Regeneration Act 1996
Under NEC, there are different options of adjudication available to avoid and resolve disputes, but this depends on whether the above Act applies.
Option W1 is relevant where adjudication will be used, but the Act does not apply. Option W2 is relevant where adjudication will be used, but the Act does apply.
There are some similarities between the two options such as appointing an adjudicator named in the Contract Data and lists the adjudicator's discretion. However, there are some differences too.
Under Option W2, parties may adjudicate at any time and the adjudication timetable under the Act is followed. However, under Option W1, any unresolved issues are to be notified to the Project Manager and other party, within two weeks of the production of a list of issues. The dispute is referred to the adjudicator within one week of the adjudication notice2. The rest of the adjudication
Tip 10: Z Clauses
These are any additional clauses parties may agree to include in the contract, if they believe the provisions are not already covered in the contract. However, only relevant clauses should be included, rather than adding clauses that do not serve a valid purpose.
These clauses should be carefully drafted and understood to maintain consistency throughout the contract and avoid any contradictions. Examples of Z clauses may include further provisions relating to title of plants and materials, disclosure of information, and right to access the site.
There you have it. Your top tips when dealing with NEC.
Footnotes
2. NEC4 ECC Option C, clause W1.3.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
