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The New NEC Contract
Peter
Higgins
14 February 2006
It is normally with averted eye that I try to avoid the Editor's gaze when he is looking round for a reporter for the evening's event. Not that it is a particularly unpleasant task, it is just something that I always forget to complete. However, not this time. It was with a double pleasure that I actually offered to write this report; firstly because I worked for Peter for many years in and around construction contracts and, secondly, because I believe that the New Engineering Contract 3rd Edition (NEC3) is a further step forward in extracting the construction industry from the contractual morass in which it has floundered for too long.
Peter Higgins was the Chairman of the NEC Drafting Panel and, in that role, was responsible for the introduction of the 3rd Edition; therefore who better to introduce it to the Branch? I must at this point acknowledge that the Editor is also a member of the Drafting Panel so possibly he should have been writing this report instead of me! (Editor's note: that would be a clear case of apparent, if not real, bias) Peter's presentation combined an introduction to the NEC, for those not familiar with the concept, with an update of what is new in the recently released 3rd edition.
The first point to note is the ever-increasing size and weight of the compendium edition of the contracts which is now resembles a concrete building block but costs much more. Much of the contents are now updated, principally the Engineering Construction Contract (ECC), whilst some new elements have been added including Framework and Term contracts. However, limitations of time only allowed Peter to review the ECC element in any detail; possibly he may be persuaded to return someday to explain the rest of it to us.
For those unfamiliar with the NEC philosophy, first the history lesson. In 1985, the Institution of Civil Engineers recognised that contract arrangements within the U.K. were in a poor state and passed a resolution requiring a review of alternative contracts strategies for civil engineering design and construction, with the objective of identifying the need for good practice. This opinion was echoed in the subsequent Latham Report into the problems with the construction industry. The consultative draft of the NEC was published in January 1991 with its 1st Edition in 1993. The 2nd Edition was published in 1995 under the name of the Engineering Construction Contract (ECC) and an expanded 3rd Edition was published in July 2005.
Most construction contract forms work on a confrontational style of contract management. The objects, aims and procedures of the employer and contractor are diametrically opposed. The employer seeks to obtain the best possible quality at lowest possible price with completion at the earliest possible opportunity. The contractor wishes to provide the lowest quality that will be accepted (since this is cheapest), maximise the payment to him, and in so far as it is cost neutral, he is unconcerned as to time. This has resulted in substantial conflicts, especially during times when profit margins are being squeezed and tender prices become unrealistically low. The NEC was designed to overcome this conflict.
The main objectives of the NEC are stated as being flexibility, clarity and a stimulus to good management. The contract form is flexible in that it provides for most if not for all possible forms of contract procurement within one set of documentation. It contains a series of core clauses to deal with all general matters, and optional clauses to add provisions specific to an individual style of procurement. It deals with clarity by using simple straightforward english language instead of precedent based legal jargon. Words such as "achieving satisfaction" or "being reasonable" have been omitted as far as possible. As a stimulus to good management, a series of sticks and carrots are provided to stimulate co-operation between contractor and employer.
The ECC is based on a "pick and mix" structure where the contract is made up from an assortment of primary and secondary options. One primary option must be chosen which sets out the payment scheme; this being traditional (with either lump sum or bill of quantities), target costs (also with either lump sum or bill of quantities), or cost reimbursement. Any number of secondary options can be selected covering matters ranging from design liability to retention. Additional options are provided for dispute resolution to provide for 1996 Act compliant adjudication if required.
The essence is that any permissible combination of options may be selected safe in the knowledge that the contract will still fit together properly without contradictions or gaps. The clause structure is also simplified to minimise cross-referencing and only covers matters essential to the operation of the contract; all other requirements relating to how the work is carried out which are often found in the Conditions are relegated to the Works Information.
July 2005 saw the release of the 3rd Edition which maintains the structure of the previous edition with amendments drawn from the last 10 years of use. The principal changes are to the scope of some secondary options, the assessment of contractor's costs and the imposition of sterner sanctions should the contractor or project manager fail to act within the time allowed. This last change has caused much excitement but requires looking at in detail to appreciate fully its scope and significance.
So, will you use it? It offers no magic wand that may be waved over a construction site to bring peace and harmony. However, it is a very useful step forward and is the only standard form currently endorsed by the Office of Government Commerce as recommended for use in public sector contracts.
We must therefore thank Peter twice over; firstly for overseeing the drafting of this useful and forward thinking contract and then for taking the time to present it to the Branch.
Report by James Mumford