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NEC4 overview: Out with the old?

NEC4 has been published, bringing a number of changes with potentially big implications for contractors.

The main theme of NEC4 is that it represents an evolution rather than a revolution in thinking. Many of the changes made, therefore, update and adjust the terminology of the NEC from 2005 when NEC3 was published.

While there have been a number of superficial changes (such as ‘employer’ changing to ‘client’ and ‘works information’ changing to ‘scope’) and additions (new DBO and Alliance contracts) the devil, as is so often the case, is in the detail.

There are in fact quite a lot of changes in detail, some of which are big. If we were to pick four fundamental changes, these would be the ones to the programme, compensation events, final assessment and dispute resolution.

The programme

The programme has always been a central feature of the NEC suite and a key distinguishing feature between the NEC and other standard forms.

Clause 31.2 has a key amendment to look out for: it provides that if the project manager does not answer a programme submission, the programme can become accepted by default.

The blow is potentially softened as, in common with other default mechanisms in the compensation event clauses, there is a requirement to notify the project manager of his failure first.

The concern we have here is that either poor programmes will be accepted by default, helping neither project management of compensation event assessment, or there will be more poorly reasoned rejections to avoid the default process.

Compensation events

There have been a number of changes to the compensation events section.

The main one to focus on is the new ‘dividing date’, applicable to both time and money assessments. The dividing date determines the use of actual costs and forecast cost. In relation to time, it identifies the accepted programme to assess changes to planned completion against.

A potential problem with this change is that the definition of dividing date can lead to compensation events, impacting a programme which already includes some or all of their effects, distorting or making impossible any analysis.

Final assessment

In NEC3 there were two anomalies that often led to Z clauses: the starting point for interim payment was the project manager; and there was no definitive final account process. These issues have been addressed in NEC4.

“Our favourite that we have spotted so far is the prohibition on corrupt acts (clause 18) which only binds the contractor and not the client” 

Clause 50.2 provides that the contractor submits an application before each assessment date setting out the amount in considers due, and a new Clause 53 provides for a final payment mechanism.

Our concern here is that the final payment can be operated in default, but also only applies to payment and does not require a general review by the project manager of earlier decisions.

Dispute resolution

There are some key amendments to the dispute resolution clauses.

Added to both W1 and W2 is a new escalation provision which allows the parties to refer any dispute first to senior representatives.

A new option W3 provides for the use of a standing dispute avoidance board whose role is to resolve potential disputes before they become actual disputes. The dispute avoidance board is there in an advisory role but, if it issues a recommendation, it becomes binding within four weeks if no dissatisfaction notice is issued, which can lead to fairly radical results.

However, the role of the dispute advisory board has not been made clear, and is intended to only apply to projects not subject to the Housing Grants, Construction and Regeneration Act 1996.

All in all there are some very useful amendments in NEC4 – but there are also a couple of curious ones which we can only assume were overlooked by the drafters.

Our favourite that we have spotted so far is the prohibition on corrupt acts (clause 18) which only binds the contractor and not the client.

Rob Horne and Emily Monastiriotis are partners at Simmons & Simmons

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