Amendments to NEC4 issued – what's new?

Amendments to the NEC4 suite of contracts were published on 9 February 2023, following continuing discussion and feedback from users and industry experts. Here we focus on the NEC4 engineering and construction contract (ECC), however, similar amendments have been made to forms across the suite.

As a brief summary, the main changes are:

• Addition of a right to use documents prepared for design (extension of the copyright licence);
• Changes to adjudication procedures to align more closely with statutory drafting;
• Further helpful clarification in respect of the outcome of early contractor involvement;
• A climate change option (X29) has been added, with an emphasis on collaboration and incentivisation; and
• Remote working is now provided for in the Schedule of Cost Components.

Intellectual property rights

The simple intellectual property rights licence wording in clause 22.3 has been clarified to state that in addition to a right to use the design in general terms, documents prepared for the design may also be used by the Client. Clause 22.3 is generally amended or supplemented in any case, but it may be helpful for those who rely on the unamended wording to have an express reference to the right to use the documents.

Resolving and Avoiding Disputes Option W2

Option W2 is the disputes option intended for use when the Housing Grants Construction and Regeneration Act 1996 (the Act) applies, and so is commonly used for UK projects. The amendments to the option allow the Adjudicator to decide the procedure and timetable for the adjudication, removing the requirement for a party to provide any further information within 14 days of the referral. This is not a requirement of the Act and in many cases probably not helpful.

In clause W2.3(8), the Adjudicator is empowered within the decision to “review and revise any action or inaction of the Project Manager or Supervisor”. Overall, the amendments to W2.3 derive from the statutory Scheme for Construction Contracts which sets out adjudication procedure and accompanies the Act. As such, they should not be controversial.

Option X22: Early Contractor Involvement

Changes were made to the early contractor involvement option in October 2020. Those changes provided for the ability to amend Access Dates through the Contractor’s proposals for Stage Two and clarified the process for submission of the Contractor’s proposals for Stage Two including changes to the total of the Prices. These changes were followed by the issue of a practice note on Option X22 in February 2022, which included advice on setting the price for Stage Two.

There are further enhancements in the latest amendments, focusing on the outcome of the early contractor involvement stage (Stage One).

Scope provided by the Contractor during Stage One is no longer expressly stated to become Scope provided by the Contractor for its design. That said, this may be the case as a matter of fact.

The ability for the Project Manager to agree changes to the Site Information has been added.

If the Contractor’s obligation to provide the works is terminated during Stage One, a new express profit amount in respect of any remaining work during Stage One has been added.

There is a new provision for the Project Manager to issue a notice that the works will not proceed to Stage Two – a common amendment as there was previously a lack of clarity on whether this could happen and what the impact would be.

If the Works do not proceed to Stage Two, the Completion Date and the Prices are amended to reflect Stage One – which would appear to mean that the Contractor would not have any further claim in respect of the loss of opportunity or profit as a result of the works not progressing to Stage Two – a point which is generally amplified through amendments.

Compensation events which occurred prior to the notice to proceed to Stage Two are to be taken into account in the changes made by the notice to proceed to Stage Two.

The clause also sets out the profit element of the amount due on termination under Options C and E if the Works proceed to Stage Two.

Option X29: Climate Change

New Option X29 has been included across the suite’s long form contracts. The clause is intended to reduce the impact of the creation, operation, maintenance and demolition of the works on climate change. Following consultations on a draft option X29 in April 2022, options for the various contract forms together with guidance notes were subsequently produced in July 2022, differing only slightly from the consultation versions. These have now been incorporated into the full set of contract amendments. New clause X29 is a fairly simple provision with a familiar feel for NEC users. It requires the Contractor to collaborate with the Climate Change Partners named in the Climate Change Requirements and to submit a Climate Change Plan for acceptance. The option also provides for measurement of the Contractor’s performance against targets in a Performance Table, which should be linked to pain/gain incentives, in a similar way to the X20 key performance indicators drafting. The effect of the new clause could perhaps be achieved using existing mechanisms but a specific climate change option is nonetheless welcome.

Payments in respect of people remote working

In the Schedule of Cost Components, which is used to calculate Defined Cost of the works under the target contract and the cost reimbursable contract, the ability to list people in the Contract Data who are employed by the Contractor and whose normal place of working is not within the Working Areas and who are working outside of the Working Areas (other than on manufacture and fabrication and design) has been added. This is presumably with the intention of providing for people to work remotely.

In the Short Schedule of Cost Components, used for compensation events under the priced contract options, people costs have been simplified to refer just to the rates in the Contract Data – again, presumably with the aim of removing any requirement for people to physically be onsite, provided that they are listed.

Payments for constructing, fabricating or modifying Equipment are now allowed for (whether or not as a result of a compensation event).

Amendments to other forms

Although not covered in detail here, amendments have also been made to:

• the engineering and construction short contract (ECSC) and the engineering and construction short subcontract (ECSS) to include an option to limit the Contractor’s (or Subcontractor’s) liability for design by reference to reasonable skill and care (rather than the higher ‘fitness for purpose’ standard), a professional indemnity insurance requirement, and an overall liability cap,
• the professional services short contract (PSSC) to add a compensation event where the Consultant corrects a defect in the service that it is not liable for,
• the supply contract (SC), to enable the Supply Manager to certify the date of delivery,
• the short supply contract (SSC) to remove the limitation on indirect and consequential loss and instead include a limit on liability for damage to property and a general limit on liability and to provide for an additional termination right in connection with defaults in batch ordering and
• the term service short contract (TSSC) to add a limit on liability for damage to property, a general limit of liability and an exclusion of liability for consequential loss.