WHAT ARE THE CHANGES?
Since its publication in June 2017, there have been a limited number of updates to NEC4 (issued in January 2019 and October 2020) covering various clarifications and changes. In 2023, and following a period of industry feedback, some further amendments have been published that will be included in all the relevant contracts from January of this year.
Of particular note are the incorporation of climate change provisions and the ability to allow those working from home (or other previously excluded areas) to be included as part of claimable costs where the Schedule of Cost components is applicable. The changes also include welcome tweaks to short form design liabilities and the adjudication procedure. These, together with some of the other changes set out below, are designed to increase contractual alignment with industry norms/requirements and/ or between the NEC4 forms themselves; thereby removing the need for some of the bespoke amendments commonly incorporated A link to the NEC's schedules of amendments is included here and we have adopted the same contract abbreviations to indicate which NEC4 forms these changes are applicable to.
Below, we cover each of the latest changes with a brief commentary as to what that means in practice for those adopting the NEC4 forms of contract.
- X29 - CLIMATE CHANGE (applies to all main forms)
Whilst X29 was previously published by NEC as an option in its own right, this has now been incorporated into all the NEC main contract forms. Whilst there are some variations between the different forms, the key points are:
- The Client can set out its Climate Change Requirements in the Scope.
- The Contractor submits a Climate Change Plan showing how the Contractor intends to meet the Climate Change Requirements.
- There is a Climate Change approval process for approval and sign off.
- There is a mechanism allowing the Contractor to propose Scope changes to reduce climate change impacts of the works together with associated risks, quotations and programme changes.
- X22 - EARLY CONTRACTOR INVOLVEMENT (ECC)
We are seeing an increasing use of this clause and there are some notable changes to this Option:
- Where a project proceeds from Stage 1 to Stage 2, compensation events that were previously judged as against the Contract Date are now judged as against the date of the notice to proceed to Stage 2. The practical effect of this is that any knowledge gained by the contractor during Stage 1 can now be taken into account when assessing a CE. Notably, physical conditions (CE 60.1.12) and 'work stoppage' events (CE 60.1.19) would be based on the judgement of an experienced contractor post Stage 1 as opposed to an earlier date.
- YUK (2) - ADJUDICATION PROCEDURE (all main forms)
Dispute Option W2 (that applies where the 'Construction Act' is in force in relation to your contract) has been updated to make clear that the Adjudicator decides the procedure and timetable of the adjudication. The requirement that all submissions are to be made within 14 days has helpfully been removed. This is to be welcomed as the 14 day period can be unworkable (and potentially unfair) and often requires revision - which can be reliant on the dispute parties' mutual consent.
- DEFINED COST AND WORKING FROM HOME
(Forms that incorporate/rely on the Schedule of Cost Components (not the Shorter Schedule of Cost Components)) (ALC, DBOC, ECC, ESC, FMC, FMS, TSC and TSS)
This amendment addresses the issue of relevant personnel working outside of the defined Working/Service Areas. The Contract Data now includes for a list of people working outside of the Working/Service Areas who will be included as components in the Schedule of Cost Components (which forms the basis of payment, targets and/or Compensation Events depending on the particular form used). This has been updated to reflect current 'remote' working practices and could now include people working from home and/or other locations.
- Contractor’s liability for design limited to reasonable skill and care (ECSC and ECSS)
In the short form contract and sub-contract,optional 'yes or no' drafting has been included allowing the Client/Contractor to include an obligation on the contractor/sub-contractor such that any liability for design they undertake is limited to that of the reasonable skill and care normally used by professionals designing works similar to those works. If this is not selected, the contractor/sub-contractor is liable for any default in relation to its design (a fitness for purpose type obligation). This is consistent with the position in the main form of contract which allows for the inclusion of such a 'reasonable skill and care' obligation by the adoption of X15 (Contractor’s Design). Previously, the short form would have to have been amended to achieve what is a common industry position and to avoid issues of uninsurability.
Where the above 'reasonable skill and care' standard is selected, there is a corresponding requirement for the Contractor/sub-contractor to provide professional indemnity insurance and also a further amendment that then provides that the Contractor/sub-contractor is not liable for a design defect unless it failed to exercise the above level of skill and care and, if it corrects any such Defect, this is then a compensation event.
- Using the supplier’s design (ALC, DBOC, ECC, ESC, FMC, FMS and SC)
This amendment extends the principles of clause 22.1 (using and copying the design) so that it now applies to the supplier's design rather than just the Contractor's design. The wording provides that the Client can now use and copy the supplier's design and documents prepared for that design. Where this amendment has been made to a main contract form, it has also been incorporated into the associated subcontract form.
- Limit of liability (ECSC, ECSS, FMSC, FMSS, SSC, TSSC and TSSS)
In order to make the short form contracts align with the main contract forms, and whilst there is not the option to insert the same individual heads of loss caps (as per Option X18), NEC4 has now added a clause in the relevant Contract Data/Sub-Contract Data to allow for a total limit on liability.
- Damage to the Client’s property (FMSC, FMSS)
These amendments provide that the Service Provider is liable for loss or damage to the Client’s property which arises from the Service Provider Providing the Service. It also provides the Client with an option to limit this liability in the Contract Data.
- Payment on termination (SSC)
This is another change with the aim of bring one of the shorter forms in line with the longer forms in the NEC4 suite. The SSC has been brought into line with the other contracts in respect of the payment due to the Supplier in the case of a termination due to a Purchaser’s default or for the Purchaser’s convenience. More specifically, on termination due to the Purchaser’s default or for the Purchaser’s convenience, the amendments provides for compensation to be payable at 5% of any excess of a forecast of the amount due at Delivery (in other words if the contract had been fulfilled) had there been no termination over the amount due on termination.