NEC PUBLISHES NEW AMENDMENTS TO THE NEC4 SUITE OF CONTRACTS

Earlier this month, NEC published its latest amendments to the NEC4 suite of contracts. The updates, which cover topics ranging from climate change to limits of liability, bring about a host of useful changes, which demonstrate the NEC’s commitment to ensuring that its contracts adapt to meet the needs of the industry post-Covid. In this briefing note, Andrew Croft, James Hughes and Rhia Gould consider the key changes and what they mean for contractors and consultants using the NEC4 suite going forward.

Key Changes:

Secondary Option X29 (Climate Change)

Previously published as a standalone secondary Option, X29 (Climate Change) has now been incorporated into each relevant main contract. As we’ve discussed in previous articles (see here and here), X29 represents a positive step in helping the industry tackle net zero and other related climate change and biodiversity goals. However, it is not a “complete solution”, and parties will need to consider carefully how it should be used and whether any amendments are necessary to balance commercial needs and reflect project-specific standards.

Remote Working

Emphasising the rise in remote working within the industry, the Schedule of Cost Components (e.g. as used with the Engineering and Construction Contract) has been updated to allow for the recovery of the costs of people working outside of the Working Areas / Service Areas as part of Defined Cost, even if they are not normally based within the Working Areas / Service Areas (e.g. people working from home). As with almost all industries, the construction sector saw a significant shift towards remote working during the COVID-19 pandemic, and this amendment is a welcome sign of NEC’s efforts to ensure that its contracts are inclusive and reflect ways of working on modern projects.

Liability for designs

The Engineering and Construction Short Contract (and the related Short Subcontract) has been amended to allow the Client to reduce the Contractor’s obligation for designs they produce to that of the skill and care normally used by professionals designing works similar to the works (i.e. reasonable skill and care). This contrasts with the default position, which suggests that the Contractor is liable for any failure in its designs (which could result in fitness for purpose obligations and/or other obligations which are inconsistent with PI insurance arising). The Contract Data also allows the parties to specify insurance cover (to apply on an each claim basis) to be maintained by the Contractor in respect of its liability for claims against it arising out of failure to use the standard of skill and care referred to above. This is similar to the position where secondary Option X15 is used in other forms of NEC contract and should be welcomed by both contractors and their professional indemnity insurers, with the latter often specifying that cover will not be provided in respect of obligations which impose a greater duty on the insured than the exercise of reasonable skill and care.

Limit of Liability

Several of the short-form NEC4 contracts (including, for example, the Engineering and Construction Short Contract) have been updated to allow the parties to include in the Contract Data / Subcontract Data a total limit on the Contractor’s / Subcontractor’s liability under or in connection with the contract. Generally, these amendments are reflected in clause 84.1, which also contains an exclusion for indirect or consequential losses. These changes bring the short contracts into line with the main contracts, with the inclusion of a limit of liability being optional. Unlimited liability is a significant risk, which should be seen as a red flag by contractors and consultants on any project, and this amendment is therefore another helpful nod by NEC to the realities of modern contract negotiations.

Secondary Option X22 (Early Contractor Involvement)

Significant amendments have been made to secondary Option X22 (Early Contractor Involvement), which is relevant where the Engineering and Construction Contract (Options C and E only) is used. Option X22 allows for a two-stage contracting process, and the latest amendments to this secondary Option are intended to provide further flexibility in the development of a project in Stage One and greater clarity over the process to be followed if the works do not proceed to Stage Two. For example, if the works do not proceed to Stage Two, the Project Manager must now issue a notice to that effect and change the Completion Date and Prices (if the main Option is C) to match the Price for Work Done to Date at the end of Stage One.

Other Changes:

In addition to those set out above, other notable amendments include

• the ability of the Client to use the supplier’s design has been clarified and extended to include documents prepared for design (for example, see Engineering and Construction Contract, clause 22.1); and
• dispute resolution Option W2 has been amended to clarify that the Adjudicator decides the procedure and timetable for the adjudication, for consistency with the Construction Act.

Comment:

NEC’s latest set of amendments are a welcome step forward, demonstrating its recognition of the challenges and realities faced by the industry in the current climate. The amendments in relation to climate change, remote working, and some of the key positions in the short form contracts are particularly useful and should be required reading for all those tendering for or considering entering into NEC contracts using these new forms. As always, it will be crucial to consider whether the amended forms are appropriate, and, if not, what amendments will be required.

An overview of the amendments (save minor typographical changes) is available here. We understand that copies of contracts published by NEC from January 2023 will contain the amendments and a table summarising them. However, where this is not the case, if it’s intended that the changes should apply, it’s important that they are expressly referenced as required.