What’s new with NEC4, and how should it be used?

Image: www.neccontract.com

What is NEC4? How does it differ from NEC3? Why has it changed and what are the risks? A recent panel event organised by CIOB’s London Hub provided the answers. Tom Francis reports.

Tom Francis

The NEC form of contract has been growing in popularity over the last decade. Its adoption on high-profile projects such as the Olympic Park is often cited as indicative of its benefits. We’re now starting to see the latest edition, NEC4, being implemented on a number of projects across the country. So with the contract starting to emerge into general use, how is it being applied in practice and what has changed from NEC3? 

A panel organised by the CIOB’s London Hub debated the issue at a recent seminar in the capital.

While NEC3 came along several few years ago, the latest NEC form arrived in 2017. It came with the natty marketing line, “evolution not revolution”. Ian Heaphy of the NEC Contract Board suggested that much of the change in NEC4 came from user groups and people using the contract. It’s reassuring to find that a contract board listens to its users, rather than taking advice only from those working on a more theoretical basis.

Like any contract, the latest NEC form is not without risk, particularly for those less familiar with it. Some may be tempted to treat it as they would with JCT or another standard form. That would be very risky, as it operates in quite a different way. The CIOB seminar aimed to help people spot the key differences.

Often criticised by lawyers for its simple language, NEC4 is no different to NEC3 in that respect. It has retained its “plain English” approach. However, many solicitors suggest this creates opportunity for ambiguity. Where ambiguity exists, there is opportunity for dispute.  

Notable changes to the contract include the requirement for a quality management system. There are more detailed options for implementing BIM, and changes to party names. The “Risk Register” is now an “Early Warning Register”. For commercial people and lawyers, it’s worth noting that dispute resolution has changed. Many law firms have produced handy guides for those needing to familiarise themselves with the new form and its changes.

Also of note now is the change created by the “Healthy Buildings case” (Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd [2017] NIQB 43). This means that assessing compensation events in NEC contracts is now different. If you have to assess (or prepare) a compensation event for time, after the event, it’s likely that known facts will be taken into consideration. This was not thought to be the case before the decision.

In any discussion about the NEC contract, the thorny question of z-clauses seems to arise. Employers (or clients) will often seek to reallocate and shift risk using z-clauses. Entire papers are dedicated to the use of and risks of using these clauses. Garima Singh of Turner & Townsend notes a shift towards changing terms relating to termination. The aim is to make it easier for the employer to terminate a contract. This should be something to look out for when signing up to an NEC contract.

While it was noted by Heaphy that many contractor colleagues had wanted z clauses banned, that is not practical as no two projects are the same and no risk requirements are the same.

Heaphy also observed that the NEC provide regular updates to their contract. The latest came out earlier in 2019. They can be found on the NEC website.

Finally, a note on technology and contract admin. As we move further into the 21st century, it’s worth noting there are technologies available for administration of contracts. As Mark Farmer rightly says, the industry must “modernise or die”. It’s therefore worth exploring how technology can help save time and effort on projects.

All these changes and developments undoubtedly present risks to those who don’t take time to identify them and deal with them. But managed well and taking advantage of the latest tools and technology, NEC4 has the potential to become a valuable tool in the successful management of projects.

Tom Francis MCIOB is a director at Decipher Consulting and chair of the CIOB Manchester Hub

Decipher will be hosting another NEC4 seminar at its Leeds office on 17 October