NEC4: Principles don’t translate into practice

The lack of clarity over responsibilities in the draft NEC4 ALC contract could prove a stretch too far for clients, says Assad Maqbool.

Assad Maqbool

The NEC4 suite of construction contracts published in June includes a consultative draft of an alliance contract, the NEC4 ALC. It includes some laudable principles, but implements them with such divergence from general market practice that its use would be very limited if finally published in its current form.

For the first time, NEC has engaged with multi-party contracting, used in pockets of UK construction, at least since the publication of the PPC2000 in 2000 and, more recently, the framework alliance contract FAC-1.

The approach recognises that the success of a project is team based and attempts to address the inefficiencies caused by traditional bilateral employer-contractor contracts, which have entrenched the industry’s inherently adversarial behaviours.

However, the NEC4 alliance contract does not define the relationship between the alliance partners and so does not assist in the building of an effective team by, for example, clarifying responsibilities for information exchange, licensing of intellectual property including copyright, and dealing with confidentiality as between the alliance partners.

That might be acceptable if the alliance partners were able to enter into a separate agreement between themselves, but the alliance contract is stated to be the entire agreement between the alliance.

Avoiding a blame culture

That would appear to be a minor flaw in comparison to the general lack of responsibility of the alliance partners to deliver on their obligations. If an alliance partner fails to carry out the works or services that it is required to provide, it will not be liable for such failure unless it is a wilful default: the alliance partner will not be liable for its own negligence.

There appear to be two main purposes of this stance: to avoid a blame culture and to motivate the team by common goals and incentives. The intention is that the sharing between the alliance partners of any saving or overspend against the budget will be sufficient motivation for the alliance partners to properly perform.

Coupled with the ability of any alliance partner to walk away from the alliance at any time, this appears to be a stretch too far.  If an alliance partner finds that it has overpromised and cannot deliver (or cannot deliver for the cost it had envisaged), it can walk away with minimal consequences and possibly still profit if the remaining alliance partners pull together and deliver the project.

The reasoning is that the alliance is consensual and, if any party perceives it to be failing, it should be allowed to disband. In committing to a particular project, a client would ordinarily expect a greater certainty of delivery. 

Confused responsibilities

This leaves the client holding the bag. The draft contract confuses responsibilities of the alliance (including the client) and responsibilities of the alliance partners excluding the client; as it currently stands, the client appears to be responsible for performing the project.

One would question why the client would consider using this contract when this is added to the facts that: anything that is not the wilful default of an alliance partner is a client risk; the list of compensation events includes anything of which there is a small chance and that the alliance could not prevent; and the alliance can terminate at any time.

It could be argued that the risk allocation makes the alliance contract a natural home for the brave new world of integrated project insurance (IPI). As the client is taking all risk of performance, it is naturally placed to insure against any failure.

However, if this draft contract is intended for projects using IPI, it must be amended to reflect that IPI relies on there being a known and stable team which has been assessed and insured: the practicalities of this would not allow alliance partners to walk away with relative impunity.

Assad Maqbool is a partner with Trowers & Hamlins. The consultation ends on 30 November and the consultation draft can be found at www.neccontract.com