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Thirty years of NEC contracts – A brief history

This year the NEC forms of contract will have been in use for thirty years. Originally designed and written by Dr. Martin Barnes, the first edition of the New Engineering Contract was published by the Institution of Civil Engineers in 1993. The fourth edition of the contracts (NEC4), launched in 2017, is now one of the most widely used standard forms of contract in the UK and its use is growing internationally. The following is a brief history highlighting the key moments in the development of NEC contracts and significant projects.

September 1985 – The Legal Affairs Committee of the Institution of Civil Engineers (ICE) undertake an industry-wide review of existing procurement and contract strategies.

1986  – The ICE commissioned the drafting of a new modern form of engineering contract with the objective of achieving improvements over traditional contracts with greater flexibility, clarity and simplicity, and stimulus to good management. 

1987 - The aims of the New Engineering Contract are set in a specification prepared by Dr. Martin Barnes.

January 1991 -  The New Engineering Contract was drafted for consultation with the industry and trialed on a number of projects.

March 1993 – The first edition of the New Engineering Contract was published as a ‘main contract’ for use by an Employer and Contractor together with a subcontract version with back-to-back clauses. Early adopters of the contract include the British Airports Authority, ESKOM, National Power and Scottish Hydroelectric.

1994 - The first edition of the Professional Services Contract and Adjudicator's contract is published.

July 1994 – Sir Michael Latham’s report ‘Constructing the Team’ endorses NEC contracts and makes recommendations for their improvement.  Two new contracts are published: The Professional Services Contract and Adjudicator’s Contract.

1995 – The second edition of the NEC contracts is launched including some of the recommendations made by Sir Michael Latham. One notable addition is a new obligation to act “…in a spirit of mutual trust and co-operation.’  Substantial changes to the sections on risks and insurances and adjudication procedures are made. The New Engineering Contract is renamed The Engineering and Construction Contract.

1996 – The UK Housing Grants Construction and Regeneration Act 1996 (the Construction Act) came into force on 01 May 1998. The Construction Act, implementing many of the recommendations made by Latham, introduced statutory adjudication and the requirement for staged payments with a mechanism for determining when payments become due for construction contracts.

April 1998 – An addendum to ECC2 is published introducing a secondary option payment clause Y(UK)2 in response to the new provisions of the Construction Act.

June 2005 -  Building on the success of the first and second editions, its original title ‘New Engineering Contract’ is replaced by the brand name ‘NEC3’.  Twelve forms of contract are published in the NEC3 family which includes for the first time a term service contract and a framework contract.  A new dispute resolution procedure option W2 for statutory adjudication is introduced. The UK Office of Government Commerce (OGC) endorse the use of NEC contracts for public sector construction projects.

May 2005 - The first notable case to be heard in the UK courts involving an NEC contract: Costain v Bechtel (2005)

September 2005 - The Construction Industry Development Board (CIDB) of South Africa endorse the use of the NEC3 family of contracts. The CIDB cite the need for 'simplification of contract documents to enable them to be more readily comprehensible, particularly to persons whose mother tongue is not English' as a key driver.

June 2006 – Minor amendments are made to the NEC3 suite of contracts.

2007 – The High Speed railway (HS1) linking London with the Channel Tunnel opens. The new line running from St. Pancras station to northern Kent costs £5.8 billion and is delivered using the NEC Engineering and Construction Contract (ECC) 2nd edition.

2009 - The first edition of the Supply Contract is published for the design, manufacture, and supply of high-value goods. A short version of the Supply Contract for single or batch order goods is also published. 

2010 – The Institution of Civil Engineers withdraws publication of the ICE Conditions of Contract allowing it to solely endorse the NEC forms.  The ICE Council advised its decision was borne from ‘a desire to promote what we see as a more collaborative approach to contract management which offers value for money to clients and the construction industry at large.’  The ICE Conditions were subsequently taken over by the Association of Consulting Engineers in 2011 and rebranded as the Infrastructure Conditions of Contract (ICC).

September 2011 - Amendments to the NEC3 suite are made to the dispute resolution option clauses for adjudication to align with the amendments to the Housing Grants Construction and Regeneration Act 1996 bought about by the Local Democracy, Economic Development and Construction Act 2009.

November 2011 - Secondary Option Y(NZ) clause published for NEC3 contract users in New Zealand. Y(NZ) 1 is drafted to comply with the Construction Contracts Act 2002 and Y(NZ)2 for use with the Contracts (Privity) Act 1982.

2012 – The venues and infrastructure for the London 2012 Olympic games are completed. The Olympic Delivery Authority procures £7.3 billion of works and services using NEC contracts.

April 2013 – A fully updated version of the NEC3 suite of contracts is published. Changes include the introduction of a Professional Services Short Contract, Project Bank Accounts, and updates to the  dispute resolution clauses for adjudication to align with the amendments to the Construction Act 1996 under the Local Democracy, Economic Development and Construction Act 2009.

2015 – The UK government commence procurement of contracts for the High Speed (HS2) rail project using the NEC3 Engineering and Construction Contract Option C (target cost).

January 2016 - Additional clause for Early Contractor Involvement (ECI) for use with the NEC3 Engineering and Construction Contract main Option C and E.

2016 – The Hong Kong government announce that NEC contracts will be used where ever practicable for all future public-funded projects.

2016 - Work starts on the Thames Water £4.2 billion Tideway tunnel. The 'super sewer' is procured using the NEC3 Engineering and Construction Contract main Option C.

June 2017 – The fourth generation of contracts (NEC4) is published in June 2017 with sixteen forms of contract including, for the first time, the Design, Build and Operate Contract (DBOC) and a consultative version of the Alliance Contract (AC). Back-to-back subcontract versions of the Professional Service Contract and Term Service Contract are also published.

June 2018 – The Alliance Contract is formally published. A multiparty contract, described by its publishers as ‘…for use on major projects or programmes of work where longer-term collaborative ways of working are to be created’.  The ALC is later adopted for delivery of Highways England’s (now National Highways) £7 billion smart motorways programme.

January 2019 – Various amendments are made to the NEC4 suite including how changes to extensions of time are assessed. 

August 2019 - The Lima Pan American and Parapan American Games are held in Peru. The venues and facilities for the games were procured using the NEC3 Engineering and Construction Contract.

October 2020 – Further amendments to the NEC4 contracts are published including changes to invoicing arrangements, delay damages on termination and early contractor involvement.

2020 -  Sydney Water commit to using NEC4 contracts for its £2.2 billion investment programme: Partnering for Success (P4S).

January 2021

A new range of Facilities Management contracts is added to the NEC4 suite.

NEC4 contracts are selected to deliver £1.7 billion of investment to build the world’s largest radio telescope: the Square Kilometre Array Observatory (SKAO) with sites in South Africa and Australia.

The world's highest-value NEC contract to date (3.25 billion Euros) is awarded by the Belgium government for the design and construction of the Oosterwheel ring road in Antwerp.

March 2021 - New secondary Option Y clauses are published for use in Australia and Ireland.

May 2022 – Crossrail, London is completed with construction works and design services procured using the NEC3 contracts. Nine new stations with 42km of tunnels linking Reading and Heathrow airport with central and east London with a total estimated outturn cost of £19 billion.

June 2022 – A consultative secondary Option: Reducing the impact of the works on climate change (X29) clause is published.

January 2023 - A third set of amendments to the NEC4 contracts are published (09 February 2023). Secondary Option X29 Climate Change is incorporated into each of the long versions of the 'main' and subcontract forms.  The Schedule of Cost Components and Contract Data is revised allowing the cost of people working from home and other locations outside the Working Areas to be included as Defined Cost. Dispute resolution clause Option W2.3 is amended in line with the UK Construction Act clarifying that the Adjudicator decides the procedure and timetable for adjudication.  Secondary Option X22 (Early Contractor Involvement) in the ECC was amended allowing greater flexibility during the 'pre-construction stage' (Stage One) and more clarity in how the contract is managed if the Client decides not to proceed to the construction stage (Stage Two).

March 2023 - New secondary Option Y clauses are released to support the use of the NEC4 contracts in Northern Ireland where the Construction Contracts (Northern Ireland) Order 1997 applies.

 

What's next for the modern standard form of contract?

Typically, new editions of standard conditions of a contract are published every 10 to 12 years so it wouldn't be a surprise to see 'NEC5' within the next 5 years. The NEC forms have evolved over the last thirty years with each new edition and subsequent amendments, so if the past is any indication of the future we may not see any radical changes in the next few years. However, it does no harm to think about what changes are possible, and below is a short list of ideas:

  • Development of digital contracts

  • Climate change (X29) integrated with Whole Life Cost (X21) and incorporated into the core clauses

  • Early Contractor Involvement for use with fixed-priced contracts in the ECC.

  • Mediation included in the ECC and PSC contracts to assist Senior Representatives in dispute resolution

  • Provision of retrospective project manager self-assessment of compensation events

  • Overhaul of Option F: Management contract to reflect industry best practice

  • Alignment of the Term Service Contract and Facilities Management Contract into a single more versatile form of contract

  • Wider use of NEC contracts in other industry sectors e.g. oil and gas and wind energy

David Hunter
Daniel Contract Management Services Ltd

March 2023

1. The date when the articles on the website were first written and published are given with each blog. Readers should note these dates and take account of any future changes to the NEC forms, other contracts and the law generally when reading the blogs.

2. As users of the NEC will know the contract adopts a particular drafting convention for defined and identified terms. Since many of our blogs also appear in other publications all NEC contract terms are set in lower-case, non-italic type and their meanings are intended to be as defined and or as identified in the relevant NEC contract.