NEC4 Contract
The NEC Contract is the most popular form of contract for infrastructure works in the UK and the latest update version has been examined by EIC for its suitability for international use.
The Institute of Civil Engineers published in June 2017 the latest incarnation of the NEC suite of contracts – the NEC4 "Engineering and Construction Contract". The new edition underpins the NEC philosophy and underlines the duty of the Parties to act in a spirit of mutual trust and cooperation.
NEC4 concise, yet sufficiently detailed
One of the major advantages of NEC4 is that it is concise, yet sufficiently detailed, in its core clauses, whilst potentially creating confusion for inexperienced users when applying the secondary option clauses. EIC has investigated whether the NEC4 responds to the integral elements of an international standard form of contract and provides a practical alternative to the more traditional international standard forms of construction contracts.
EIC welcomes that the NEC lists the so-called compensation events in one clause, still parties can agree on further compensation events in the Contract Data. The standard form acknowledges the need for a liability cap and for an exclusion of indirect and consequential loss. NEC’s good project management practice is illustrated by the provision that there is a stipulated timeframe for responses between Project Manager and Contractor. Ignoring these timeframes leads to an acceptance of the other’s position, which ensures that communications are responded to in a timely manner. Notably, other standard forms deem a claim rejected in case of silence, which leads, in EIC’s experience, to uncertainty.
NEC4 choice between litigation or arbitration not suitable for international projects
Concerning dispute resolution process, EIC accepts that the intermediate step of referrals of the dispute to senior representatives might be helpful in some circumstances. However, if one of the parties is not willing to embrace the NEC philosophy, this step creates an additional hurdle on the dispute resolution process. EIC would have preferred to see that the Dispute Adjudication Board’s decision be binding, however, NEC4 does not state it clearly. In addition, the free choice between litigation or arbitration is definitely not suitable for international projects. From EIC’s experience of the international construction industry, arbitration should have been the default solution for achieving final and binding decisions of disputes.
In summary, EIC honours the NEC4 contract for its cooperative approach and the simple structure of its core clauses. Nevertheless, there are concerns whether all players within the international construction market are prepared to embrace this pro-active management approach. The question may not be whether NEC is fit for purpose for international use, but rather whether the international market is ready to adopt the NEC standard form of contract with its mannerisms and principles.