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Last edited 28 Jul 2021
NEC was first published in 1993 as the New Engineering Contract. It is a suite of construction contracts intended to promote partnering and collaboration between the contractor and client. It was developed as a reaction to other more traditional forms of construction contract which have been portrayed by some as adversarial.
In 1994, NEC was strongly recommended in the Latham Report (Constructing the Team) which investigated the perceived problems with the construction industry, describing it as ‘ineffective’, ‘fragmented’ and ‘incapable of delivering for its customers’, proposing that there should be greater partnering and teamwork.
The NEC contracts are intended to:
- Stimulate good management.
- Be clear and simple, written in plain English, in the present tense and without legal terminology.
- Be useable in a wide variety of situations from minor works to major projects.
The third edition, NEC3 was published in 2005.
In 2009, as NEC3 became more popular, ICE announced that it would withdraw from the ICE Conditions of Contract (CoC) in favour of NEC3. The UK government also stopped updating the GCWorks contracts in favour of NEC3.
The suite of documents now includes:
- ECC Engineering and Construction Contract.
- ECSC Engineering and Construction Short Contract.
- ECS Engineering and Construction Subcontract.
- ECSS Engineering and Construction Short Subcontract.
- FC Framework Contract.
- TSC Term Service Contract.
- TSSC Term Service Short Contract.
- PSC Professional Services Contract.
- SC Supply Contract.
- SSC Supply Short Contract.
- AC Adjudicators Contract.
The Engineering and Construction Contract (ECC) is the most frequently used, and can be adopted on projects such as infrastructure, buildings, highways and process plants. It is used for the appointment of a contractor for engineering and construction work, including any level of design responsibility.
The ECC, PSC and TSC contracts offer a range of options:
- Option A: Priced contract with activity schedule.
- Option B: Priced contract with bill of quantities.
- Option C: Target contract with activity schedule.
- Option D: Target contract with bill of quantities.
- Option E: Cost reimbursable contract.
- Option F: Management contract.
- Option G: Term contract (for the appointment of a consultant based on a priced schedule of tasks).
Each contract is supported by guidance notes and flow charts describing the procedures to be followed.
NB: In April 2013, an update suite of contracts was made available, including new guidance, a new Professional Services Short Contract, provisions and clauses for project bank accounts and a range of other changes. For full details see: NEC Announces updated April 2013 Edition suite of contracts.
- The form of agreement.
- Conditions of contract.
- Contract data (setting out information needed to operate the contract and identifying the documents which contain works information).
- Prices, activities schedules and bill of quantities.
- Works information (describing what is to be done on the site).
- Site information (describing the condition of the site before the work starts).
- General terms.
- Contractor's main responsibilities.
- Testing and Defects.
- Compensation events.
- Risk and insurance.
Using NEC3 requires that all parties enter into the contract with a collaborative mind set and that the procedures and terminologies are properly understood and adhered to. If parties have not used NEC3 before, great care must be taken to recognise that the terminology and key terms may be different from other forms of contract, with differences ranging from the fact that the contract administrator is replaced by a project manager, through to new terms such as compensation events, and a range of new procedures.
The above point means that training is an important pre-requisite for a successful NEC3 contract, particularly when a project team is not familiar with NEC. This is not just limited to training on what the NEC3 contract says, but also how to operate effectively. In addition, people need to be good at project management to get the best from it.
In addition, use of a dedicated NEC3 contract administration system - usually cloud based and of which there are numerous products on the market - makes it much easier to efficiently and correctly administrate the contract. While they produce tangible savings in time, the intangible benefits are high: greater compliance, accountability and transparency, etc.
Lastly, for those used to working in a confrontational environment, the culture change needed to get the best from using the NEC needs to be addressed. This includes how 'hard' skills are used e.g. programming and forecasting, as well as 'soft' behavioural issues such as style of negotiation etc.
NEC3 is not without its critics. It has been described as requiring too much expertise to operate, focussing too much on project management and generating too much paperwork. In 2010, Justice Edwards-Stuart described it as a “triumph of form over substance" (Anglian Water Services v Laing 2010).
The number of companies involved on a large building project and the length of supply chains means that capturing cost information in relation to compensation events takes a long time. More often than not the project manager has to decide whether or not to proceed with a variation based on estimates from the cost consultant which in due course get replaced by the actual cost. It has been argued that this practicality defeats the rationale of NEC3 in relation to cost control and decision making.
In addition, compensation events due to changes that are not caused by the contractor are reimbursed at cost and not related to tender pricing. The only basis for challenging these costs is unreasonableness. This can cause difficulties, for instance policing a factory overhead claimed for additional work in relation to items such as overtime and additional supervision and when goods are also being produced for other projects.
- NEC3 contracts are frequently used with the target cost contract option. The 'open book' nature of this contract strategy - where the contractor has to demonstrate their costs to be reimbursed and the employer wants sufficient checks to ensure they are not overpaying - leads to more quantity surveying resource. This is independent of the use of the NEC.
- under NEC3, you are both administrating and managing the contract. Under traditional contracts, you are much more doing the former. Doing the latter as well may lead to increased professional costs during the construction phase, but means that work on-site is better managed leading to less time and cost increases on whoever those costs fall. In addition, the rolling final account gives both parties better monitoring, forecasting and certainty on project outcomes with only a few details to be settled post-completion. This compares with months, if not years, of negotiation to settle a final account on traditional contracts.
Related to the above point, successive editions and updates to the family have put more emphasis on the contractor providing quotations for compensation events based on forecast effects. If and when accepted by the project manager these adjust the contractual Prices and Completion Date and cannot be revisited. The work is therefore done more efficiently with greater contractual certainty of the effect. If both parties embrace the intent of agreeing quotations based on realistic forecasts, it actually leads to a lots less professional time doing records, agreeing disruption, etc.
 Ongoing development
In November 2015, NEC announced publication of ‘Early Contractor Involvement’ (ECI) contract clauses for NEC to help improve project collaboration. See NEC early contractor involvement for more information.
 Related articles on Designing Buildings Wiki
- Articles of agreement.
- Atkins v Secretary of State for Transport.
- Bill of quantities.
- CLC publishes guidance on COVID-19 impact for NEC4.
- Construction contract.
- Construction law
- Contract conditions.
- Contract data.
- Cost reimbursable contract.
- Defined cost.
- Delay damages.
- Disallowed cost.
- Early appointment / involvement.
- ICE Conditions of Contract.
- Infrastructure conditions of contract.
- Key dates.
- Latham Report
- Levelling the playing field
- Management contract.
- NEC contract change management systems.
- NEC contracts - road development and management schemes.
- NEC early contractor involvement.
- Period for reply.
- Procurement route.
- Target cost.
- Term contract.
- Time Risk Allowance TRA.
- Works information.
- Z clauses.
 External references
- NEC Contracts.
- NEC Announces updated April 2013 Edition suite of contracts.
- Construction Manager: It's widely used, but watch out for NEC's hidden traps. 4 July 2013.
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