NEC Engineering and Construction Contract
The New Engineering Contract (NEC), or NEC Engineering and Construction Contract is a formalized system created by the Institution of Civil Engineers that guides the drafting of documents on civil engineering and construction projects for the purpose of obtaining tenders, awarding and administering contracts. As such they legally define the responsibilities and duties of Employers (who commission work) and Contractors (who carry out work) in the Works Information. The Works Information consists of the Contract Data part one (Data provided by the Employer) and Contract Data part two (Data provided by the Contractor). Several approaches are included making it a family of options. It is used in the UK and internationally in countries including New Zealand, Australia, Hong Kong and South Africa.
There have been three editions, the first in 1993, the second in 1995, and the most recent in 2005. The June 2005 edition of the NEC3 was amended in June 2006, and again in April 2013.
The NEC is a family of standard contracts, each of which has these characteristics:
- Its use stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract.
- It can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location.
- It is a clear and simple document - using language and a structure which are straightforward and easily understood.
The NEC3 complies fully with the Achieving Excellence in Construction (AEC) principles. The Efficiency & Reform Group of The UK Cabinet Office recommends the use of NEC3 by public sector construction procurers on their construction projects.
The NEC contracts now form a suite of contracts, with NEC being the brand name for the "umbrella" of contracts. When it was first launched in 1993, it was simply the "New Engineering Contract". This specific contract has been renamed the "Engineering and Construction Contract" which is the main contract used for any construction based project. It now sits alongside a number of other contracts that together should mean that the NEC suite is suitable for what ever stage of a lifecycle the project is at and for any party within a project. The contracts available within the suite are:
Engineering and Construction Contract (ECC):
Suitable for any construction based contract between an Employer and a Contractor. It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil & gas, etc. Within the ECC contract there are six family level options of which the Employer will choose what he deems to be the most suitable and give him the best option/value for money on that project:
- Option A: Priced contract with activity schedule
- Option B: Priced contract with bill of quantities
- Option C: Target contract with activity schedule
- Option D: Target contract with bill of quantities
- Option E: Cost-reimbursable contract
- Option F: Management contract
These options offer a framework for tender and contract clauses that differ primarily in regard to the mechanisms by which the contractor is reimbursed and how risk is allocated/motivated to control costs.
The core clauses (of the main option listed above) are used in conjunction with the secondary options and the additional conditions of contract. The Efficiency and Reform group of The Cabinet Office in the UK (formerly the OGC) has published generic public sector Z-clauses for the use with NEC3 contracts.
The clauses of these options can be adapted by tenders for subcontractors, and designers by choosing one of the contracts below.
The Engineering and Construction Subcontract Contract (ECS)
Very similar in detail and complexity of contractual requirements to the ECC contract above, but allows the contractor to sub-let the project to a subcontractor imposing most of the clauses that he has within his headline contract. There is very little difference between the ECC and the ECS, other than the names of the parties are changed (contractor and subcontractor)and some of the timescales for contractual responses are altered to take into account the timescales required in the ECC contract.
The Engineering and Construction Short Contract (ECSC)
This is an abbreviated version of the ECC contract and most suitable when there is considered "low risk" (not necessarily low value) on a project with little change expected. This contract is still between the employer and contractor but does not use all of the processes of the ECC making it simpler and easier to manage and administer.
The Engineering and Construction Short Subcontract (ECSS)
Allows the contractor to sub-let a contract down the line to a subcontractor on a low risk project when his contract with the employer is an ECSC.
The Professional Services Contract (PSC)
This contract is for anyone providing a service, rather than doing any physical construction works. Designers are the most obvious party that fit into this category. Whilst they are producing a design for an employer or contractor, they would sign up and follow the clauses within the PSC. Most of the clauses within this contract are the same as that in the main ECC contract, so that all contractors, designers and subcontractors have pretty much the same obligations and processes to follow as each other.
Framework Contract (FC)
Parties enter into a "framework" of which work packages will then be let during the life of that framework. Any individual projects will then be awarded using one of the other contracts within the suite, meaning that the parties follow the headline clauses within the framework contract (which is a fairly slim contract) and then the individual clauses within the chosen contract for that package. Different work packages can be let using different contracts during the life of the framework.
Term Service Contract (TSC)
For parties on a project that is operational or maintenance based, e.g. maintaining highway signage, where the contract is to ensure that a certain standard is maintained. This contract is not generally used for constructing new works, but can include some amount of betterment. There is also a "Term Service Short Contract" where the project is a relatively low risk project and is an abbreviated version of the main TSC.
Supply Contract/Short Supply Contract (SC/SSC)
The newest addition of contracts to the NEC family, being launched in 2010. This is for a supplier of supplies or goods to a project, and puts extra contractual requirements on them during their procurement/manufacture period. The Supply Contract is for big items of procurement, with the Short Supply Contract potentially being for more run of the mill procurement items on a project.
Adjudicator's Contract (AC)
If there is a dispute between the parties on a project then the Adjudicator will follow the clauses within this contract in order to come to a decision.
Guidance Notes and Flowcharts
For each of the different contracts listed above each comes with its own set of guidance notes and flowcharts which should aid understanding of the intent of the drafted clauses. The guidance notes expand on each clause to give extra substance and intent of the original drafters as to how a clause should be understood and interpreted. The flowcharts then map out each of the main processes within each contract and demonstrate how it should operate and what to do next if a party has or has not carried out the next contractual action.
Originally contracts in the civil engineering and construction industries were bespoke and drafted by Chancery pleaders using their knowledge of leases rather than building processes. In 1879, Royal Institute of British Architects for construction projects created RIBA forms which lead to the Joint Contracts Tribunal, JCT forms. For civil engineering the need for a formalized approach to contracts led the Institution of Civil Engineers to produce the ICE formalized set of conditions of contract. In 1986, the ICE commissioned the development of a new form of contract as it was felt that there was a need for a form that had clearer language, clearer allocation of responsibilities and reduced opportunities for contractual “gamesmanship”. In 1991, this resulted in a consultative form of the New Engineering Contract form of contract. The first edition was published in 1993. Wider use of the NEC was recommended by the Latham Report in 1994.
The following demonstrates the differing approaches to drafting in the NEC and ICE forms of contract using the illustration of circumstances when the contractor is entitled to additional time and cost for physical conditions.
- NEC Engineering and Construction Contract Second Edition Clause 60.1 (12)
The Contractor encounters physical conditions which
- are within the site.
- are not weather conditions and
- which an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for them.
- ICE Conditions of Contract Sixth Edition Clause 12(1)
If during the execution of the Works the Contractor shall encounter physical conditions (other than weather conditions or conditions due to weather conditions) or artificial obstructions which conditions or obstructions could not in his opinion reasonably have been foreseen by an experienced contractor the Contractor shall as early as practicable give written notice thereof to the Engineer.
Guidance Notes and Flow Charts are published by the ICE. These notes are supplemented by the Frequently Asked Questions sections of the NEC website. Prospective users of the NEC3 contract are encouraged to study the FAQ's in order to avoid unintended contract provisions. The often unintended Option C scenario where a Contractor is paid monies in excess of the Target Cost plus maximum share provisions is specifically not addressed in the guidance notes / Frequently Asked Questions. Other common misinterpretations are minutes of meetings as communications, deleted work and paying for correcting defects. Employers often utilise the additional conditions of contract (Z-clauses) to amend or delete contract provisions relating to these items.
- R Gerard (2005). Relational contracts—NEC in perspective. Lean Construction Journal, 2, 80-86.
- Brook M. (2004). Estimating and Tendering for Construction Work Butterworth-Heinemann ISBN 978-0-7506-5864-5
- Patterson R (2007) Introducing NEC Wellington Seminar
- NEC (2005) NEC3 Engineering and Construction Contract Thomas Telford Ltd ISBN 978-0-7277-3359-7
- Broome JC, Hayes RW. (1997). A comparison of the clarity of traditional construction contracts and of the New Engineering Contract. International Journal of Project Management, 15, 255-261. doi:10.1016/S0263-7863(96)00078-6