In March 2017, it was announced that NEC4, the next evolution of the NEC suite of contracts, will become available in June 2017. Sculpted from 20 years of user feedback, NEC4 aims to inspire and enable project collaboration across the UK and internationally.
Speaking at the Society of Construction Law Conference, the NEC Contract Board’s Matthew Garratt revealed that NEC4 will be made available for the very first time at the largest ever gathering of the NEC Users’ Group Annual Seminar on June 22nd 2017.
The NEC4 suite evolves out of NEC3 and has been specially designed to support innovation through digital advances and encourage collaboration across the world. Delivering real project value and enabling best practices in procurement, NEC4 recognises the need for contract administration, terminology and risk management to evolve. It is hoped that this will enable all disciplines across a flexible industry to procure, manage and deliver truly collaborative projects.
NEC4 will be officially made available to purchase following the June 22 NEC Annual Users’ Group Seminar, to be held at the etc.venues, County Hall, London.
 Changes in NEC4 works contract
The new works contracts are:
- NEC4 Engineering and Construction Contract (ECC).
- NEC4 Engineering and Construction Subcontract (ECS).
The changes have been designed to support the on-going drive for further collaboration and integration of teams, greater use of modern work methods, better avoidance of disputes and more effective identification and management of risk and opportunity – all of which will help lead to more successful outcomes.
There have been key changes to provisions in the ECC and ECS, as follows:
 Early warning provisions
The 'Risk Register' has been re-named the 'Early Warning Register' to distinguish it from the project risk register often used for wider project management purposes. There are now default periods for early warning meetings.
 Programming changes
There are new 'dividing date' provisions similar to those used in compensation events. New provisions provide for 'treated acceptance' of the contractor's programme in situations where the project manager does not respond to a programme issued by the contractor for acceptance, or to a reminder. This is to unlock the impasse which can sometimes occur.
 Terms standardised
There are also some important new provisions in ECC and ECS to help promote collaboration, as follows:
 Identifying opportunities
An additional procedure includes the identification of opportunities by either party. These are discussed jointly and the contractor can share in the cost savings of opportunities that it initiates
This is now included as a secondary option, based upon the clauses published by NEC in 2015.
 Supporting information modelling
A new secondary option is added specifically to support the use of information models and digital engineering models. This requires the contractor to provide an information model execution plan either for incorporation in the contract from the outset, or within a period defined by the client.
A 4 week period for escalation and negotiation of a dispute has been introduced, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and try to reach a negotiated solution.
The works contracts now include a dispute avoidance option W3 which can be used if the UK Housing, Grants, Construction and Regeneration Act does not apply. This is to refer any dispute to a dispute avoidance board. The benefit of this new option is to encourage and support the parties in resolving any potential dispute consensually, and to support users who wish to use this facility on their projects.
 Financial agreement
For payment applications and final accounts, there are now procedures aimed at reaching agreement on the final amounts due. Provisions have been introduced to the cost-based contracts (main options C to F) that allow the contractor to instigate a review and acceptance of its defined cost by the project manager, upon request.
Other new and changed provisions in ECC and ECS include the following:
In secondary option X12, 'Partnering' has been changed to 'Collaboration' better to reflect the intent.
A new core clause deals with confidentiality, restricting the disclosure of project information.
The use of a communication system, including an electronic one, are recognised through amended clause 13.2, and if required is defined in the scope.
 Schedules of cost components
Some changes have been made to simplify the schedules of cost components and associated contract data inputs. The 'Schedule of Cost Components' is used only for main options C, D and E and the 'Short Schedule of Cost Components' has been removed from these contracts. The short schedule is now used exclusively in options A and B and only to assess compensation events. It adopts a pre-priced approach for people cost to replace the previous cost-based approach.
 Fee percentage
 Changes in NEC4 supply contract
The new supply contracts are:
- NEC4 Supply Contract (SC).
- NEC4 Supply Short Contract (SSC).
Since they first appeared in 2009, the two supply contracts have become increasingly widely used. This is anticipated to continue as the NEC4 suite becomes the 'contract of choice' for many organisations.
The SC and SSC enable the purchase of goods of any complexity sourced from anywhere in the world. The contracts can be for any sector and any level in the supply chain.
The updated contracts have better alignment with the NEC4 suite of contracts, provide improved commercial arrangements and offer more opportunities for purchasers and suppliers to be proactive and innovative.
The main changes from the NEC3 versions are as follows.
As with other NEC4 contracts, the term 'Risk Register' has been replaced with the more appropriately termed 'Early Warning Register', better reflecting the risk management process within the contract.
The communication protocol also now includes provision to specify a communication system within the scope. This mirrors modern use of the SC and frequent adoption of collaborative software systems in practice.
This replaces the term 'Goods Information' and is now standard in all NEC4 contracts. The scope includes supply requirements, which allow users to comply with the latest international trading terms if they need to do so.
 Cost transparency
Commercial amendments include an improved definition of cost. This now sees the incorporation of a detailed schedule of cost components. Provision for people rates have also been included.
 Option improvements
The X12 partnering option has been replaced with a multiparty collaboration option, a term which better describes the structured collaborative agreements typically seen on larger contracts. This should help suppliers in being genuinely included within supply chain arrangements and provide real incentive for innovation. This is further enhanced through a new option on supplier's proposals. This provides the facility for the supplier to propose changes to the scope to reduce the cost of an asset over its whole life.
 Changes in NEC4 service contract
The new service contracts are:
- NEC4 Term Service Contract (TSC).
- NEC4 Term Service Short Contract (TSSC).
- NEC4 Professional Service Contract (PSC).
- NEC4 Professional Service Short Contract (PSSC).
- The new NEC4 Dispute Resolution Service Contract (DRSC – based on the NEC3 Adjudicator’s Contract).
Since the service contracts have been changed in the same way as all contracts in the NEC4 family, there are a number of changes in common with those in the works and supply forms. This includes standardisation of terms, with 'Employer' becoming 'Client' and 'Service Information' becoming 'Scope'.
Other changes in the NEC4 TSC and NEC4 PSC make the total changes arguably more significant. This article looks at the specific changes to the service contracts.
The principal changes specific in the NEC4 TSC compared to the NEC3 version are as follows:
 Service manager instructions
NEC3 acknowledged changes to the affected property could occur, but in NEC4 the service manager may instruct them. This will be useful where the extent of a client's asset fluctuates, for example increases in numbers of houses for housing associations or new roads for highway authorities.
 Task orders
NEC4 reinforces the intended purpose of task orders with clearer distinction over how instructions changing the scope, task orders and 'call off' against existing scope work in combination.
 Accepted plan and task order programmes
A failure by the service manager to reply to plans submitted for acceptance paves the way for a new sanction, similar to that for compensation events, resulting in it being treated as accepted.
NEC4 TSC requires the contractor to submit an application for payment before each assessment date and, following the service manager's certification of payment, the contractor is required to submit an invoice.
 Schedules of cost components
In NEC4, the TSC, like the ECC, now includes both a schedule of cost components and a short schedule of cost components. A new concept of service areas provides clarity in distinguishing defined cost from fee.
 Extending the service period and accounting periods
The ability for the parties to agree to extend the service period has been elevated into a new secondary option. A further new secondary option provides for a final amount due at the end of each accounting period.
In drafting NEC4 the decision was taken to bring PSC closer to the other contracts and move away from what might be considered a more traditional way of appointing a consultant or other professional.
This has resulted in considerable change – indicated by a name change from Professional Services Contract to the Professional Service Contract to show its relationship to the TSC. While many of the changes are those seen in the TSC, there are some areas where it still differs from it.
The principal changes are as follows:
 Service manager and payment
The employer's agent option X10 has been removed and a service manager introduced as integral to contract. Among other changes this brings, the assessment of the amount due now lies with the service manager rather than with the consultant.
This has been introduced together with a schedule and shorter schedule of cost components. These follow the principles of the schedule and shorter schedule of cost components in the ECC and, now, the TSC.
 Option G
This has been removed, leaving options A, C and E. A client which wants a call-off arrangement for professional services is now expected to set up a framework using the NEC4 Framework Contract (FC) and PSC contracts for the work packages. Small packages of work could be instructed under the PSSC.
This has retained its importance as a management requirement, and the new sanction of deemed acceptance for a lack of response from the service manager is also included in the PSC.
 TSSC and PSSC
The new TSSC and PSSC reflect the procedures adopted in the new TSC and PSC while still retaining simplicity of management.
- Modifications to the compensation event procedures, with a defined cost approach now adopted, and one fee percentage quoted.
- A procedure to agree people rates.
- The option of adjustments to the prices for inflation.
The DRSC is the NEC4 version of the NEC3 Adjudicator's Contract (AC), emphasising that it is not restricted just to appointing an adjudicator. It can also be used to appoint a member of the dispute avoidance board in an NEC contract.
A new section to apply to the duties of a dispute avoidance board member has been introduced as an alternative to the adjudication section in the AC. Users of the AC should easily transfer to this new form.
 User guides
The existing NEC guidance documents – in the form of guidance notes, flow charts and ‘How to’ guides – have been developed and added to over many years. This has led to guidance on a specific topic sometimes appearing in more than one place and some topics being less well covered than they might be.
In producing the NEC4 contracts, a comprehensive review and re-structuring of all guidance documents was completed. The aim has been to:
- Provide a simple, easy-to-follow structure so that guidance is more readily accessible.
- Address any gaps.
- Include explanations of how clauses are used.
- Provide practical advice by including checklists where appropriate.
The new NEC4 user guides provide step-by-step support to help users choose the most appropriate NEC4 contract, prepare the chosen contract, select a supplier and then manage the contract to deliver the client's objectives.
Each of the topics is covered in a separate user guide.
 Establishing procurement and contract strategies
The user guide on procurement and contract strategies helps clients to identify the best way of achieving their project objectives, taking into account constraints, funding, risk and asset ownership. It provides guidance on selecting the most appropriate procurement route and choice of available NEC4 contracts and available options to meet their specific needs.
The starting point assumes that the client has resolved the following:
- The business case and project objectives.
- The risk profile and overall management strategy including, in broad terms, decisions made with regard who is best placed to manage the risks.
- A decision has been made to use the NEC4, but the contract strategy has not been determined.
 Preparing the contract
The contract preparation user guide helps clients prepare the particular NEC4 contract they have chosen to use to achieve their project objectives ready for supplier selection to commence. For each NEC4 contract, the relevant user guide includes:
- An explanation of the constituent parts the contract.
- A checklist on how to complete contract data as well as a worked example.
- A checklist on what should be included in the scope and where relevant other documents like the site information (ECC, ECS, ECSC and ECSS) and affected property (TSC and TSSC).
- Guidance on preparing a pricing document where relevant.
The starting point assumes the client has resolved its contract strategy and decided which contract to use, including the main and secondary options where relevant.
The supplier selection user guide helps with how to select a supplier. Where tendering has been chosen as the method of selection, guidance is provided on the tender process including sending out invitations to tender, tender evaluation and assessment. Guidance is also provided on finalising and awarding contracts.
The starting point assumes the client has prepared the relevant NEC4 contract.
 Managing the contract
The contract management user guide helps manage the chosen contract correctly once the contract comes into existence. For each NEC4 contract, the relevant guidance book provides detailed practical guidance, broadly based on the clause structure, on how to operate them to achieve a successful outcome.
The nature of the FC and DRSC mean that the contract preparation and management parts of the guidance are contained in the same user guide.
For all the latest up to date information about NEC4 visit www.neccontract.com.
This article is made up of:
- Originally published here by ICE on 3 Mar 2017, written by Lucy O'Connor.
- Originally published here by ICE on 15 May 2017, written by Robert Gerrard, NEC Users’ Group Secretary and Tim Knee-Robinson, NEC4 drafter.
- Originally published here by ICE on 29 May 2017, written by Ross Hayes and Ben Walker, NEC4 drafters.
- Originally published here by ICE on 5 June 2017, written by Tim Knee-Robinson, NEC4 drafter.
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- NEC early warning notices - a tool of mutual benefit.
- NEC4 Alliance contract.
- NEC4 Design, Build and Operate Contract.
- NEC4 - legal and insurance aspects.
- NEC contract change management systems.
- Procurement route.
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