Its role in mitigating disputes was a reason to celebrate the NEC’s 10th birthday this year. But it is also beginning to show signs of age and the time is ripe for a revamp
Having celebrated its 10th birthday this year, it seems a good time to reflect on the NEC3 form of contract and ask if it has lived up to expectations or whether the challenges often identified with its use mean that it is time for an upgrade.
The NEC3 has become known in the industry as the Marmite contract: you either love it or hate it - it is certainly difficult to be indifferent to it. Either way, it is the contract of choice for the procurement of major infrastructure schemes and an increasing number of commercial and social infrastructure projects.
The intention behind the first NEC forms back in 1993 was to move away from adversarial forms of contract and establish a more collaborative model based on the principles of best practice in project management.
Now in its 3rd edition, it has gained significant traction in the industry with its continued focus on project delivery and aligning the objectives of the parties, rather than “risk dumping” and “combative” structures which all too often serve as fertile breeding grounds for disputes.
Proponents of the NEC3 point to a track record of successful delivery on major schemes such as: Heathrow Terminals 2 and 5, the London Olympics, Christchurch International Airport and the new Terminal 3 at Indira Ghandi International Airport in India.
The form has also attracted endorsement from big-hitting industry players including the Highways Agency, Crossrail, the Nuclear Decommissioning Agency, Aldar Properties in Abu Dhabi and the government of Hong Kong.
However, detractors can list many NEC3 projects that have not fared so well. Is it the “nature” of the NEC3 or the way in which it is “nurtured” that leads to the success, or failure, of projects on which it is adopted?
There are some amendments introduced so regularly that it may be wise to standardise them
By nature, NEC3 is more than just a statement of contractual rights. It is a fundamentally different approach that requires active project management to enable clear and timely decisions to be made. It encourages the parties to identify risks and share information/solutions to problems they encounter and thereby create a much more collaborative approach to project delivery.
As objectively sensible as the above sounds, it is, however, these very provisions that lead to one of the most common criticisms of the NEC3 - the fact that it places a heavy administrative burden on the contractor and the project manager. If operated properly, any substantial project will generate hundreds, if not thousands, of notifications and formal contractual communications. This in turn causes the parties to quickly become overwhelmed and the contractual machinery is often abandoned for something more practical.
Proponents of the NEC3 point to the fact that so few disputes under these contracts have come before the courts. While that is true, that may owe more to the existence of statutory and contractual adjudication than the use of the NEC3 form alone. In so far as dispute avoidance is a positive side effect of the collaborative approach, some judicial guidance as to how its clauses should be understood to operate would not be unwelcome.
The criticism of the NEC3, whether justified or not, has left it susceptible to the red pen and most people would agree that significant amendments are necessary on any particular project. However, when do the amendments start to undermine the decision to use the NEC3 in the first place?
There are some amendments introduced so regularly that it may be wise to standardise them so as to more accurately reflect the market position. For example: establishing the order of document precedence in the event of a conflict; requiring the contractor to proceed “regularly and diligently” with the works; amendment to the definitions of “defect” and “disallowed costs”; distinguishing between “time and cost” and “time only” compensation events; streamlining of the bureaucratic “compensation event” mechanism and perhaps even clarifying the meaning of Clause 10.1 …
Whatever your perspective, it is undeniable that NEC3 has been a force for significant change in thinking and approach within our industry.
The achievement of the aims of NEC3 in prioritising collaboration and mitigating disputes are greatly to be desired but the administrative burden can prove too much and a re-vamp of the current form would be welcome.
Honest introspection as to how these contracts are actually being amended and administered would hopefully result in simplification and streamlining thereby making it more accessible and popular. A contract that seeks (long-term) to change the perspective and culture of the industry cannot do so from the fringes and in its current incarnation; it remains most effective for those with very deep pockets and a lot of patience … scarce resources indeed.
Kevin Joyce is a partner and Katherine Butler is an associate at Nabarro