NEC and climate change : NEC releases new X29 secondary Option for consultation

As we have previously reported in our “Beyond Net Zero” series, the built environment sector faces huge challenges in reducing its environmental impact and reaching Net Zero.

In a welcomed development, NEC have now released their new X29 secondary Option, reducing the impact of works on climate change, for consultation.

The Option X29 has been drafted for use with the NEC4 Engineering and Construction Contract 2017, how it will be adapted to apply to the rest of the suite of contracts remains to be seen.

In this note we consider the approach NEC have taken with this new option, the key features and how you can provide feedback in the consultation, which is open until 13 May 2022.

Secondary Option X29

Climate Change Requirements: It is envisaged that the “Climate Change Requirements” will be set out in the “Scope” and that any failure to comply with the “Scope” will be a “Defect” which the Contractor is required to correct. Whilst the NEC feel that it is likely that the “Climate Change Requirements” will be set by the Client, it could be that they are requested by the Client from the Contractor, or jointly developed.

Performance Table: NEC expect a “Performance Table” to be used with secondary Option X29, however this will not be mandatory. If used, the Client will be able to include flexible targets related to climate change as it deems fit. NEC have advised that this option not be used with secondary Options X17 “Low Performance Damages” and X20 “Key Performance Indicators”. A failure to comply with the “Performance Table” will not lead to a “Defect”, with the table viewed more as a financial incentive/penalty mechanism.

Collaboration: In the “Climate Change Requirements”, specific “Climate Change Partners” will be identified, and clause X29.2 requires that the Contractor collaborate with these Partners. This list will be devised and kept by the “Project Manager” who has the power to revise the “Scope” and the list of “Climate Change Partners” accordingly.

Climate Change Execution Plan: This is, in many ways, similar to an “Information Execution Plan” under clause X10.4. and will be set out in the “Climate Change Requirements”. It should explain the strategy towards achieving the “Climate Change Requirements” and “Performance Table” (if applicable). It will be a part of the tender documents and included in the “Contract Data” at the “Contract Date” but could be issued within a fixed period of time. Noticeably there will be no financial sanction if one is not submitted.

Disclosure: As companies are increasingly required to report and publicise their climate change credentials and actions, the secondary Option X29.5 enables the parties to disclose and publish information relating to climate change to “Others”.

Acceleration, accepting Defects: Clause X29.6 allows for “Quotations” to be submitted to the “Project Manager” for acceleration and accepting “Defects”. Any accepted “Quotations” will result in a change to the “Performance Table”. This enables flexibility to adjust the targets, amounts and dates set within the “Performance Table”.

Compensation events: NEC have included clause X29.7 to address a situation where the “Performance Table” alone is affected by a compensation event, that would not be covered by the core clauses.

Contractor’s Proposals: Under clause X29.11 the Contractor is able to propose changes to the “Scope” in order to reduce the climate effect of the works. The “Project Manager” will assess these with the Client and the Contractor may be able to submit a detailed quotation, which the “Project Manager” will have to reply to within the period to reply. The “Project Manager’s” reply must cite acceptance or the reasons for non-acceptance. Only on acceptance will the quotation change the “Scope”, “Prices”, the “Performance Table”, “Completion Date” and the “Key Dates”. The changes will not be a compensation event. The aim is to allow the Contractor to propose changes that effect the creation of the asset, its future operation, maintenance and demolitions and reduce the climate impact.

Performance Measurements: Clause X29.12 provides the method for assessing payments in accordance with the “Performance Table”. It also creates a reporting regime and a process for proposing improvements if a failure to achieve a target is forecast. Contractors will need to take care to note the required frequency of reporting against the “Performance Table” to provide early warning of any issues that may impact their achievement.

Consultation

Commentators now have until 13 May 2022 to provide feedback and comments to NEC on:

• Their overall impression of the secondary Option
• Provisions within the secondary Option which are welcomed and are considered to be best practice.
• Provisions within the secondary Option which would be difficult to implement as they stand.
• Further provisions which should be added to the secondary Option to support the global drive towards net-zero greenhouse gas emissions and sustainability.
• Other comments on the draft secondary Option.

Feedback can be provided to NEC by completing the X29 Consultation Form here.

Commentary

This X29 secondary Option is a much needed and welcomed addition to the NEC suite and demonstrates the commitment to aiding the built environment achieve its Net Zero targets.

While it is much needed and welcome development, much will depend on the Climate Change Requirements included in the “Scope” and there is, of course, potential for increased risk for Contractors. The addition of “Climate Change Requirements” to the “Scope”, means that any failure to comply will be considered a “Defect” and will require correction at cost. Similarly, the “Performance Table” provides a new financial mechanism that could provide financial incentives and penalties that will need to be considered when bidding for work. Whilst failure to achieve targets are not a “Defect”, penalties could be applied that erode profit margins.

As both “Climate Change Requirements” and the “Performance Table” have been drafted to allow maximum flexibility. The current drafting does not state who will set the requirements and targets to be met (rather than standard/defined requirements or targets), meaning the Contractor will have to carefully assess the targets in each and every case to consider whether they are achievable.

As the clause is open for consultation until 13 May 2022, we encourage all engineers, consultants and contractors to take note and provide feedback if possible.

If you would like any further information of would like to discuss this note, please contact the authors.