Summary and implications
The NEC3 (New Engineering Contracts) suite of contracts, published by the Institute of Civil Engineers, was updated in April 2013. The NEC3 suite has gone through several updates since its inception, but the new forms contain the first set of substantial changes since the suite was first published in September 2005. NEC (and in particular the NEC3 Engineering and Construction Contract (ECC)) is often seen as the contract of choice for Government procurement projects, largely because of its proactive and collaborative approach to risk and time management.
The amendments are largely by way of consolidation and relate to three main areas listed below, although this article will also briefly consider other changes:
1. updates to the payment and adjudication procedure to comply with the Housing, Grants, Construction and Regeneration Act 1996;
2. amendments to the compensation event provisions; and 3. the use of Project Bank Accounts (PBAs).
Payment and adjudication
The changes to the payment and adjudication regime were previously set out in the NEC's September 2011 amendment supplement. However, the new edition of the NEC3 has gone a step further by incorporating them into the ECC itself. These changes have been integrated to comply with and reflect the amendments to Part II of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), required by the Local Democracy, Economic Development and Construction Act 2009. As a related amendment a new provision in the NEC3 ECC allows a contractor to terminate for non-payment in relation to "an amount due under the contract", with termination permitted 11 weeks from the date payment should have been made. Previously, the contractor's right to terminate arose in respect of a certified amount and termination could occur 13 weeks after the date of the certificate.
Compensation event regime
Changes to the compensation event regime are relatively minor and are largely clarifications of pre-April 2013 NEC3 provisions. Nonetheless, in relation to notifying compensation events, additional drafting has been included to the effect that the contractor does not need to notify if a change results from the project manager giving an instruction, issuing a certificate, changing an earlier decision or correcting an assumption.
The provision setting out which of the project manager's compensation event decisions change the prices, completion date or key dates has been reworded as a positive obligation. The pre-April 2013 edition allowed the project manager one week (or longer if agreed) to notify the contractor if prices, the completion date or key dates would change. The project manager must now instruct the contractor within a specified timeframe to submit quotations (see below).
The Project Manager notifies his decision to the Contractor and, if his decision is that the Prices, the Completion Date or the Key Dates are to be changed, instructs him to submit quotations before the end of either:
- one week after the Contractor's notification; or
- a longer period which the Contractor has agreed.
As with the changes in relation to payment and adjudication, amendments to PBA provisions are largely an incorporation of earlier drafting in NEC supplements. PBAs were introduced in response to the government's fair payment initiative, which included the Fair Payment Charter published in 2006. Payments into a single bank account would ensure that no party across the supply chain could take advantage of their procurement position. Despite evidence of substantial non-compliance, PBAs are now highly encouraged on government projects of all sizes.
The PBA is included through Option Y(UK)1 in the NEC3 ECC April 2013 edition. The main provisions include:
- The requirements for the contractor to establish the PBA – this has been extended from one week to three weeks.
- Charges made and interest paid by the PBA, including wording to clarify that interest and charges are not included in the defined cost.
- The time for and effect of payment from the PBA is now linked to the time the bank needs to process payment, whereas the previous version allowed one week. Further, the new edition requires the contractor to pay into the PBA any sums withheld by the employer but which are necessary to pay the named suppliers (sub-contractors benefitting from payments from the PBA).
- Mechanism for signing the bank authorisation that releases payment. Main contractors are likely to want to amendments to the PBA provisions since the NEC3 forms do not deal with disagreements in respect of the amounts to be paid into the PBA, or with any delay in issuing the authorisation for release of money from the PBA.
Building InformationModelling (BIM) – the NEC3 ECC does not include wording specifically catering for its use on a BIM-enabled project, but includes a guide to implementing BIM in an NEC3 context. Suggested amendments to the ECC and other NEC3 forms are included to incorporate the BIM Protocol published by the Construction Industry Council.
Short-formProfessional Services Contract (PSC) – this new short form of contract was developed with the Association of Project Managers and is intended for use on smaller projects.
'How to' guides – the April 2013 suite includes seven guidance documents to help complete the works information and scope in the ECC and PSC respectively. A guide on completing the technical documents and communication forms should be of assistance to those completing the NEC forms and managing them throughout the life of the project.
Whilst the latest amendments to the NEC3 forms of contract could hardly be described as groundbreaking, they are a timely addition to a broad body of 'standard form' contracts in the market and the incorporation of provisions previously set out in supplements assists those using the contracts. This is particularly relevant as the Government's Infrastructure Procurement Routemap published in January 2013 encouraged the use of standard form contracts "such as the NEC", recently described by Justice Akenhead in the Technology and Construction Court as "highly regarded".
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.