NEC4 Contract Changes for Project Success

©
2017
+44(0)7970 428 929
jon@leadingedgeprojects.co.uk
www.jonbroome.com
Welcome to ….
NEC4 : The good, the bad & the ugly.
Part 1 : Contract strategy changes
Presenter :
Jon Broome
jon@leadingedgeprojects.co.uk www.jonbroome.com
+44 (0) 07970 428 929
setting | projects
up for | success
leading edge
projects consulting ltd

©
2017
+44(0)7970 428 929
www.jonbroome.com
Objectives
For both Part 1 and Part 2 :
 To identify and review the changes made as well as
highlighting changes that have not been made.
 To express an opinion on what is good (most of the changes);
bad (really ‘could do better') & ugly (the few clangers they have dropped).
 Part 1 focusses on “the contract strategy changes”
e.g. new members of the family, main & secondary options, including
dispute clauses.
 Part 2 focusses on “changes to the Engineering &
Construction Contract (ECC)” with attention on the payment,
programme, early warning and compensation event clauses.

©
2017
+44(0)7970 428 929
www.jonbroome.com
Agenda for Part 1
1. A very little bit about me
2. Quick Overview of NEC’s original objectives
3. Objectives for the fourth edition.
4. Two changes in terminology
5. New members of the family
6. Changes to the main payment options
7. Changes to the ‘W’ dispute options
8. Changes to secondary options
9. Some other changes across the family.

©
2017
+44(0)7970 428 929
www.jonbroome.com
A very little bit about me & NEC.
 Genuine NEC Geek.
 Involvement in NEC goes back 20+ years
 Contributions to 2nd & 3rd editions of full
Engineering & Construction Contract (ECC)
acknowledged.
 Authored top selling ‘NEC3 : A User’s Guide’
 Led development of NEC3 Professional Services
Short Contract with other members of C&P SIG.
 Co-authored bi’s on-line NEC3&4® Academy
NEC3® & NEC4® are registered trademarks of ICE Publishing

©
2017
+44(0)7970 428 929
www.jonbroome.com
Clients have / do
include …

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2017
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www.jonbroome.com
NEC’s 3 original objectives
Stimulus to Good
project Management
Clarity
& Simplicity Flexibility

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2017
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Flexibility
Purpose : to promote easy selection of ‘best fit’
contracting strategy for Package’s circumstances
 Whole family of interlocking contracts for works,
goods & services.
 Similar structure & terminology across whole family
to promote ease of learning and ‘back to back’ness
for process integration and contractual cover.
 Modular structure within each ‘long’ contract, so
that can rapidly assemble ‘best fit’ commercial
arrangement without expensive legal input.
 Any extent of Contractor design in ECC; can alter
testing requirements etc.

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2017
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www.jonbroome.com
Clarity & Simplicity
Purpose : to promote ease of understanding at ‘doer’ level &
so reduce disputes due to misunderstanding or omissions
 Simple & common structure across whole family leads to
ease of finding way around any contract
 Flow charting to ensure logic : hints at process of project
management
 Shorter sentence length & use of bullet points
 Less subjectivity: preciser definitions; roles &
responsibilities; risk allocation & rules for assessing the
quantum of compensation events(claims & variations).
 ECC is about a third of the length of traditional contracts

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2017
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Stimulus to good project management
Purpose : Range of contractual mechanisms and incentives to
promote collaborative project management, thereby increasing
predictability of time, cost & quality being delivered.
For example :
 Strong emphasis on detailed updated agreed programme
 Early warning of issues and process for resolution
 More defined criteria & process for rapid resolution of time & cost
affects of compensation events
 All actions have a timescale attached to them often with a
sanctions / stimulus if not done
 Separate & more defined Roles & Responsibilities within contract,
especially ECC : Project Manager, Supervisor, Adjudicator.

©
2017
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www.jonbroome.com
Objectives for the 4th edition
 inspire increased use of NEC in new
markets and sectors.
 support new approaches to procurement
which improve contract management
 provide greater stimulus to good project
management.

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2017
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www.jonbroome.com
Context of
comments
 Very easy to criticise what others have done.
 So put any negative comments in context :
o most of what has changed is for the GOOD.
o NEC3 is already a good contract.

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2017
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Two changes in terminology
These apply across the family :
 ‘Employer’ becomes ‘Client’ as more commonly
accepted across sectors
 Works / Service / Goods Information all
become ‘Scope’ : avoids need for generic
statements when subcontracting.
Both are ‘GOOD’ changes.

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2017
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 Engineering and Construction Contract (ECC)
 Engineering and Construction Subcontract (ECS)
 Engineering and Construction Short Contract (ECSC)
 Engineering and Construction Short Subcontract (ECSS)
 Professional Service Contract (PSC)
 Professional Service Short Contract (PSSC)
 Professional Service Subcontract (PSS) - NEW
 Term Service Contract (TSC)
 Term Service Short Contract (TSSC)
 Term Service Subcontract (TSS) - NEW
 Design, Build and Operate Contract (DBOC) - NEW
 Supply Contract (SC)
 Supply Short Contract (SSC)
 Dispute Resolution Service Contract (DSRC) - NEWLY NAMED
 Framework Contract (FC) and
 Alliancing Contract (consultative) - NEW.
The NEC4 family of contracts :

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2017
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Changes to the Family
 The GOOD : Two new subcontracts – the PSS
and TSS – as reduces the need to amend main
contracts.
 The Could do Better : Subcontracts for
compatible short versions of these contracts.
 The GOOD : the DBO contract as :
o saves having to have an extra over-arching
agreement which ties D, B & O together.
o encourages use of a Finance+DBO contract

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2017
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Alliance Contractual Framework
Sub
Consultants
Principal
Consultants
Sub
Contractors
Principal
Contractors
Sub
Suppliers
Principal
Suppliers
Client

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3 forms of Alliance :
Simple Alliance
 Enacted under NEC 3 & 4 through option X12.
 Re-named ‘Multiparty Collaboration’ option where:
o set of X12 add-on clauses to individual contracts;
o covers Core Group, Partnering Information and KPI’s
against which positive only incentives can be set;
o high level extra clauses for early warnings, joint
timetable (programme) & a compensation event for
changes to the Partnering Information.
o easiest to put in place as only upside for ‘Partners’.

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2017
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Pure / Australian Alliance
 NEW Alliancing Contract (Consultative) where :
o one multi-party contract
o very similar in structure to other members of family
o covers joint down-side liabilities
o all ‘Partners’ sign the same contract at the same
time, which is hard – technically & legally - to make
happen
o allows for two stage engagement with Stage One
being on a cost-plus basis e.g. development of
Scope & Prices
o also hardest form of alliance to get one party out.

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2017
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Traditional Alliance
 Where all alliance members have traditional works and
service contracts.
 Usually cost-based, but not always e.g. where most
costs incurred in a factory; more fit for purpose /
circumstance individual contractual relationship vs. one size fits all.
 Over-arching alliance contract ties fortunes to result of
overall project, whether good & bad.
 Easier to add members as individual Scope reaches
maturity and easier to get rid of if under-performing
e.g. can get out of Alliance but keep works contract.
 No NEC4 traditional alliancing contract.

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2017
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Changes to the main payment options
 Professional Service Contract (PSC) has lost
‘option G : Term Contract’.
 Often a Client want a consultant to provide a base level
of service for a period of time, with the ability to
instruct additional Tasks for minor projects as & when
required without having to put new contract in place.
 NEC publishers say use Term Service Contract
(TSC), but you need an Affected Property, insurance is
different etc. so would need to do multitude of tweaks.
 Far easier to update NEC3 PSC Option G to be
compatible with NEC4 PSC.

©
2017
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www.jonbroome.com
Changes to the ‘W’ Dispute options
 W1 and W2 are in NEC3 and for Adjudication. W2 is for the
UK and W1 for the rest of the world.
 In NEC4, both options now have Senior Representatives
before you get to Adjudication. In W1 it is mandatory,
whereas in W2 it can’t be and isn’t.
 New to NEC4, is W3 : The Dispute Avoidance Board
o who are 1 or 3 experienced people who keep in touch
with the contract;
o if a potential dispute arises, they try to help resolve it,
then make recommendation;
o Parties have to refer a dispute to it before going onto
adjudication, so is not compliant with Construction Acts.
BUT could have easily tweaked it, as W4, to be UK
compliant.

©
2017
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www.jonbroome.com
? Questions so far ?

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Changes to the ‘X’ Clauses.
 ‘X8 : Undertakings to the Client or Others’ : Previously
no X8 in ECC, but ‘Collateral Warranties’ in PSC. Like that :
o broadens scope of what is covered i.e. not just CW’s
o is now in ECC and TSC .
 New ‘X9 : Transfer of rights’ in ECC for material
developed for contact as per NEC3 PSC.
 New ‘X10 : Information Modelling’ replaces ’Employer’s
Agent’ in NEC3 PSC as :
o NEC4 PSC now has a Service Manager.
o allows for broader application than BIM
o Guidance Notes on BIM for NEC3 were vapid and BIM
Protocol is a contractual car crash waiting to happen.

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2017
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Changed ‘X15 : Contractor’s design’
 ECC always allowed for any extent of Contractor design,
but previous X15 only limited Contractor’s liability down
to ‘reasonable skill and care’ and correction of Defects .
 New X15 does above and
o covers Professional Indemnity insurance
o changes wording to that which insurance industry
comfortable with
o changes burden of proof onto Client
o covers IP ownership of material
o period for retention of material.
 Would have liked to have seen similar X provisions in
ECSC & ECSS to make into an ‘intermediate’ contract for
simple design.

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2017
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 Inclusion of ‘X22 : Early Contractor
Involvement’ and ‘Y(UK)1 : Project Bank
Account’ from consultative documents / separate
addendums.
 New ‘X21 : Whole life cost’ where Contractor
may propose an idea which reduces wlc and gets a
share of wlc savings … but would like to have
o seen proportions stated in CD,
o whole life value (benefit/wlc) clause
o what happens if PM/Client steals ’similar’ idea ?

©
2017
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www.jonbroome.com
 No change to ‘X1 : Price adjustment for inflation’. When
used, an almost universal amendment is to set periods when
the adjustment made e.g. annually, not when an indices
changes.
 ‘X4 : Ultimate Holding Company Guarantee’ has
changed from ‘Parent Company Guarantee’. The UHC could
be an offshore hard to get to company. Better to have one
you can get to.
 ‘X18 : Limitation of Liability’ still contains a ‘total liability’
cap which has four types of damages or negative incentives
as ‘excluded matters’. So not really a ‘total liability’ !
 ‘X22 : Early Contractor Involvement’ doesn’t have
specific termination provisions if the Client does not proceed
from Stage 1 to 2 with same Contractor.

©
2017
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www.jonbroome.com
Some other changes across the family
 A Schedule of Cost Components for all ‘long’ forms,
although have reservations for calculating People
costs under PSC
 Schedule includes Subcontractor costs.
 Tidying up of Subcontractor definition to exclude
labour only / agency staff.
 NEC4 Section 8 is now ‘Liabilities and Insurance’ vs
‘Risks and Insurance’.
 Not so sure about listing out “Client’s liabilities”
and then “Contractor’s liabilities”. What happens if
an event is in neither or could be in both ?

©
2017
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www.jonbroome.com
To finish on a GOOD note x3
In ‘long’ forms, really like :
 greater emphasis on Contractor putting forward
proposals e.g. wlc’s, value engineering and acceleration
 the prod to use cloud-based NEC communication
systems as almost hard-wire in contractually compliant
responses and make it evident who is operating the
contract & who isn’t – see ECC clause 13.2;
 that, when not accepting a communication, the Project
Manager or equivalent has to not just state contractual
reason for not accepting, but also give “sufficient detail
to enable the Contractor to correct the matter” - see
ECC clause 13.4

©
2017
+44(0)7970 428 929
www.jonbroome.com
Summary of Part 1
 mainly GOOD
 COULD DO BETTER’s are mainly
tweaks which have not been done,
except for not having a Traditional
Alliance Contract
 No real UGLIES yet, although getting
rid of option G : Term Contract of
the PSC comes close.

©
2017
+44(0)7970 428 929
www.jonbroome.com
Next week
Focus on provisions within ECC for
 Payment
 Programme
 Early warnings
 Compensation events
… but similar provisions in all ‘long’ forms.
APOLOGIES

©
2017
+44(0)7970 428 929
www.jonbroome.com
Link to raise questions for Part 2 :
Changes to the Engineering &
Construction Contract (ECC)
http://bit.ly/2mqHPI6

This presentation was delivered
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NEC4 Contract Changes for Project Success

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