Email: davidhunter@danielcms.co.uk

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Philosophy of NEC Contracts

Background

In 1985 the Council of the Institution of Civil Engineers (ICE) gave its approval of the Legal Affairs Committee recommendation to undertake a fundamental review of contract strategies for the design and construction of civil engineering projects. The main objective of the review was to identify needs for good practice. In response the ICE, led by Dr, Martin Barnes, produced a specification for the new contracts with the following aims:

  • Achieve a higher degree of clarity than existing contracts.
  • Use simple commonly occurring language and avoid legal jargon
  • Repeat identical phrases, if possible.
  • Produce core conditions and exclude contract specific data, to avoid the need to change the core terms.
  • Precisely and clearly set out key duties and responsibilities.
  • Aim for clarity above fairness.
  • Avoid including details that can be more adequately covered in a technical specification.

Implementing the aims of the specification, NEC contracts are drafted around three principal objectives:

  • Flexibility.
  • Clarity.
  • Stimulus to good project management.

Following a consultative version produced and trialed in 1991, the first edition of the NEC contract,  known then as the New Engineering Contract, was published in 1993. At the time it was described as ‘wholly original in its style and courageously ambitious in its intentions’.[1]  The NEC principles epitomise the characteristics of a modern construction contract.[2]  The latest edition of the contracts (NEC4) was published in 2017 of which there are twenty different forms including short and subcontract versions. For a more detailed account of the history and development of NEC contracts click here.

 Flexibility

NEC contracts provide for a range of procurement strategies including:

  • Traditional contracting (client design).
  • Design and Build (contractor design).
  • Early Contractor Involvement
  • Design, Build and Operate.
  • Term service arrangements.
  • Alliancing (multi-party contract).
  • Supply of goods only.
  • Management contracting.
  • Facilities management.

The contracts can be used for procuring construction works, repair and maintenance activities, professional services and the supply of goods.

All NEC contracts include nine core clauses representing standardised terms. Users then have the option of employing different commercial models including fixed price, target cost and cost reimbursable contracts by choosing the appropriate main Option.

Secondary Options allow the parties to include further contractual matters on project by project basis. The secondary Options have equal standing to the core clauses and main Options and play an important role in the allocation of risk.

The core and main Option clauses are purposely drafted to be non-jurisdictional allowing NEC contracts to be used globally. Laws governing security of payment and adjudication are provided for in optional Y and W clauses. Z clauses (additional conditions of contract) provide further flexibility.

There are no separate ‘build only’ or ‘design and construct’ versions of the contract.  The NEC4 Engineering and Construction Contract is flexible in the allocation of design responsibility between the client and the contractor.

Clarity

NEC contracts are written with its users in mind. They are drafted in plain English avoiding Latin terms and legal terminology. Sentences and paragraphs are shorter than that seen in traditional contracts and there is no cross referencing between the clauses. Bullet points are used to organise and structure the clauses making what would otherwise be long complicated clauses easier to read and understand.

A structured approach with core clauses, main and secondary options provides a logical framework for both preparation and use. Terms are defined at the start of the contract with project specific information and documents identified in contract data. An index provides a comprehensive list of key terms with clause references to help aid navigation.

Despite this approach to simplicity and clarity it does not mean that the parties will readily understand NEC contracts fully and how they should be operated without guidance and training.

Stimulus to good project management

NEC contracts are different from other forms of contract in many ways. A key difference, and one that sets it apart from traditional contracts, is that they incorporate the principles of good project management requiring the parties to adhere to processes designed to manage time, cost and quality.

Actions must be taken within prescribed timescales and they are contractual remedies for failing to comply.

The roles and responsibilities of the parties are defined with clear protocols for communication and powers of delegation. Submissions made by the supplier require objective decision making on behalf of the project manager with reasons for non-acceptance limited to those stated in the contract.

A detailed post contract risk management regime is included in all the long form versions of the contract comprising early warning notices and mandatory meetings with the purpose of seeking solutions on how matters can be avoided or reduced.

Management of time is a fundamental aspect of NEC contracts. Regular revisions to the programme submitted to the project manager for acceptance are required. Programmes must include an accurate record of work done and a realistic forecast of the remaining work before acceptance is given. The Accepted Programme is used for monitoring progress, planning future activities and forms the basis for assessing any changes to the completion date due to compensation events.

Summary

The NEC is a modern standard form of contract used extensively in the engineering and construction sector both in the UK and overseas.  The philosophy of NEC contracts revolves around the objectives of flexibility, clarity and good project management. The contracts are intended to be collaborative requiring effective communication and a proactive approach to managing risk and change. The primary aim of the NEC contracts is to create a fair and balanced framework that encourages all parties to work together for the successful delivery of projects.

David Hunter
Daniel Contract Management Services Ltd

February 2024

[1] Brian Eggleston, The New Engineering Contract: A Commentary (Blackwell Science 1996) 1

[2] Michael Latham, Constructing the Team: Joint Review of Procurement and Contractual Arrangements in the UK Construction Industry (HMSO London 1994).

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.