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Watson Burton Knowledge Programmes


NEC4 Part 1 & 2 Now Available


The new NEC4 Contract has been announced and is due to arrive June 2017.

The key changes are:-
1 Two new forms of contract
The two new forms of contract are as follows:
a)Design Build and Operate – it is what it says – it includes operation (and/or maintenance) as well as design and build;
b)Alliance – this is a very new form of contract. It is multi-party based on one team and one budget, including the client. It’s priced on an open book cost reimbursable, but with the potential for targets and savings sharing.
The remainder of the changes have been introduced into the NEC suite of contracts generally.
2 Costs savings
The Contractor can propose changes to Scope (formerly Works Information) and any savings are shared.
Secondary Option allows the Contractor to suggest changes in the Scope to reduce the lifetime
3Design and build option
This, fortunately for contractors and sub-contractors, has a reasonable skill and care clause rather than relying upon the option X15. It also includes PII provisions which are very welcome.
4 Finality of payment
Contractors to options C, D and E (Target and Cost Reimbursable contracts) can instigate a review of its costs at certain stages with a view to finalising those costs. As you would expect with NEC, there is a procedure to be followed, but if the PM fails to follow it, he/she will be deemed to have accepted the work and costs.
5 Final account procedure
Probably a welcome addition to both parties, although care is needed to ensure that personnel for both parties are aware of this provision.
Within four weeks of the Defects Certificate (i.e., at the end of the defect period), the Project Manager issues a Final Assessment of the Contractors account. The Contractor can do this if the PM fails to do so.
The key point is that irrespective of who issues it, the Final Assessment becomes conclusive (and this includes in regard to adjudication) unless:
a)the matter is referred to senior representatives within the respective organisations with four weeks of the Final Assessment (if the new Dispute Resolution Escalation Procedure applies, in respect of which see below);
b)the matter is referred to adjudication within three weeks thereafter.
This is similar to the JCT mechanism, which does sometimes catch out contractors and sub-contractors where they find they have missed the deadline for disputing the Final Assessment. Case law shows that such clauses are not deemed to have breached the construction Act requirement that parties can adjudicate ‘at any time’.
6 Consensual dispute resolution
This is not compulsory for UK construction disputes, but provides a dispute resolution escalation process, whereby senior representatives meet within four weeks of a request. Whilst it is not compulsory, it is always a useful provision in that it guarantees that senior people in each organisation know about the dispute and the extent of it at a relatively early stage and parties tend to comply with such clauses which sometimes produce early resolution where it would otherwise not have been achieved.
7 Two stage contract & BIM
There are also provisions for early contractor involvement on a two stage basis whereby stage one the contractor paid on a Defined Cost Basis, and then for stage two, paid on whichever chosen NEC contract is used, together with BIM provisions as one of the new Secondary Options (which deal with liability for BIM and ownership of it).
8 Generally
Other general inclusions include clauses that are commonly incorporated as Z clauses and to a great extent are not controversial – collateral warranties, anti-bribery and corruption, confidentiality, publicity, assignment provisions, quality management procedures, additional Compensation Events to change the risk profile, and provision for termination for any reason (as an optional clause).
Administrative changes include that Works Information is now Scope and Employer is now Client. Also, the Contract Data has been reformatted, hopefully to make it easier to complete for both parties, and the Schedule of Costs Components and Fee administration has been rationalised.

NEC4 Part 2

In Part 2 of this briefing we give an overview of changes to the schedules of cost components, programme and compensation event process – Short Contract.

Schedule of Cost Components and Fee
Alterations have been made to simplify the Schedules and associated Contract Data inputs.
The following have been removed:
·The Shorter Schedule of Cost Components (SSCC) in options C, D and E;
·The Working Areas Overhead and People Overhead in both Schedules – as an alternative, actual Defined Cost is paid;
·The design overhead as an addition to rates for designers.
The following have been altered:
·Sub-contractor costs have been relocated to the Schedule of Costs Components (previously, it was included in Defined Cost).
·People costs now includes those working in locations that aren’t the Working Areas;
·In options A and B, a pre-priced Shorter Schedule replaces the calculation based short schedule in NEC3;
·Individual Fee percentages for sub-contracted works have been replaced with one Fee percentage, bringing consistency to the application of Fee to Defined costs through all main options
New clauses have been implemented that provided ‘treated acceptance’ of the Contractor’s programme (CP), particularly where the Project Manager fails to respond to accept or reject a CP, or to a reminder – overcoming the potential stalemate.
The necessity to show ‘implemented compensation events’ in the CP is abolished.
Compensation event process – Short Contracts
When a compensation event notice is submitted by the Contractor, this must now be accompanied by a quotation. This is either accepted by the client or they devise their own assessment.