Global Vantage: The ever-increasing popularity of the NEC on international projects
October 2024Although standard industry contract forms, including the increasingly popular and well-utilised FIDIC suite, are used on international projects, there remains no single, universally accepted approach applicable across different jurisdictions and governing laws. This update examines the background and growing popularity of the NEC suite of contracts as an alternative on international projects.
Background:
The NEC produces standard construction and engineering contracts widely used for a range of projects within the UK and globally. The suite of industry contracts includes a large number of differing standard forms.
The NEC describes itself as aiming to facilitate “…the implementation of sound project management and procurement principles and practices, as well as defining legal relationships”[1]. In fact, the NEC contracts are drafted and positioned for use as a live project and risk management tool for parties to use to deliver construction projects.
Expanded use:
The NEC contracts originated in the UK and continue to be used for a range of projects, including on the London 2012 Olympic and Paralympic Games, major transport infrastructure projects (such as Crossrail, HS2 and Lower Thames Crossing) and by the UK Cabinet Office/Crown Commercial Service.
NEC3 and NEC4 contracts have since become increasingly recognised and accepted as suitable for international use. According to the NEC, its contracts have been used for projects such as the hold baggage screening enhancements at Dublin and Cork Airports in Ireland and, in Europe, the International Criminal Court’s Permanent Premises in the Netherlands and the construction of a major £3 billion ring road in Belgium. Additionally, the contracts have reportedly been used on the procurement of nuclear waste containers from Germany, a vertical cable car from the Netherlands, and tunnel boring machines from France[2].
Adoption of NEC3 contracts has occurred in regions including the UAE, North Africa, the Philippines, and the USA, as well as in other public and private sector procurements. Following pilot projects around a decade ago, Hong Kong Government works departments were tendering new projects on NEC3 contracts, making it the default for most public sector contracts. According to the NEC’s website, the NEC3 contracts are also endorsed by the South African Construction Industry Development Board, the Government Construction Board, and the Development Bureau. Additionally, the NEC has publicised that it has developed partnerships to deliver products for specific sectors and global markets (making these more attractive with clients).
By way of example, NEC contracts were used for the design, construction, and maintenance of hospitals in Hong Kong, universities in South Africa, libraries in New Zealand, and the Lima 2019 Pan American and Parapan American Games venues in South America. Sydney Water, in Australia, used NEC4 for its procurement strategy, and the NEC contract was also chosen for the Al Raha Beach project in Abu Dhabi, UAE. Furthermore, NEC4 contracts have apparently been used for major radio telescope observatory projects in South Africa and Australia, with these sites scheduled to begin early operations by next year[3].
In August 2024, The Ministry of Economy and Finance for Peru signed an agreement with NEC Contracts and the UK government to officially translate and implement standardised public infrastructure procurement and contracting. According to the press release, public infrastructure projects in Peru worth $9billion have used the NEC to date “to deliver faster, effective and more transparent infrastructure”[4].
The NEC has released a toolkit and case studies, including on some of the aforementioned projects, to highlight the application of the contracts globally, as well as principles of mutual trust and cooperation and collaborative working relationships amongst project parties[5].
Specific NEC amendments
The NEC facilitates the use of its contracts globally by publishing a few country-specific secondary Option Y clauses on its website[6]. For example, the Y Clauses for:
- Australia: Provide various options to comply with the different security of payment laws in each state/territory.
- Ireland: Incorporate the specific Irish Construction Contracts Act 2013 requirements.
- Northern Ireland: Option W2 provides for adjudication and Y(UK)2 for payment, per the Housing Grants, Construction and Regeneration Act 1996.
- Singapore: Enable use of the contract alongside local legislation, including The Contracts (Rights of Third Parties) Act 2001; The Building and Construction Industry Security of Payment Act 2004; and clauses preventing corruption and regarding termination.
Commentary
The NEC contracts contain useful provisions for parties, foster collaborative behaviours and can be used as a live project management and risk mitigation tool. Given the unique approach adopted by the NEC contracts, and the associated optional provisions and project management elements however, it is crucial that the parties fully understand and implement the contract terms. As outlined in Will Buckby’s previous article, the NEC3 is a live contract and should not be forgotten about! For example, the NEC contracts contain contemporaneous project and contract procedures designed to support successful project delivery, and which some contractors or consultants may not be immediately familiar with or could potentially find administratively burdensome in practice. Although the NEC3, and more recently the NEC4, suites of contracts are becoming increasingly used for international construction and infrastructure projects, in our experience there can commonly be non-compliances with the applicable contractual mechanisms. As a worst case scenario, this can cause confusion or even result in contractors and consultants not being able to obtain additional protection or time or money entitlements. Such an approach also potentially means that the parties do not always properly mitigate project risks or disputes as intended.
Beale & Co have a specialist team of international lawyers who can advise on the procurement and negotiation of such contracts, as well as on the provision of live risk management and dispute resolution advice at all stages of a project. For more information, please visit our website or contact the authors.
[1] Contracts, Project Management and Procurement | NEC Contracts
[2] NEC around the world | News | NEC Contracts
[3] Please see resources above and News | NEC Contracts for more information
[4] MoU between the Peruvian Government, NEC Contracts and the UK Government – GOV.UK (www.gov.uk)
[5] NEC around the world | News | NEC Contracts, see hyperlinks towards the bottom of the page
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