Welcome to the 8 Questions, where we ask senior figures in the sector the questions every business leader and ambitious professional wants answered. In this edition, we asked Sarah Wilson, Bevan Brittan LLP, Partner, What do you think leaders need to be thinking about or doing today that perhaps wasn’t part of the equation for leaders five or ten years ago?
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The NEC Contracts are simply standard forms of construction contracts, in the same way as JCT.
NEC stands for “New Engineering Contract” and has a variety of contracts including an Engineering and Construction Contract (“ECC”) and Professional Services Contract (“PSC”).
However, please do not be fooled into think that it is a similar form to JCT. The only real similarity is that they are both used for construction projects!
The value of a standard form construction contract generally (so this would include JCT) is that the key issues required for a construction project are all covered. Also, because it is standard form it is usually easier to understand (simply because people will have used it previously) and any case law relating to it will apply too subsequently.
As to the value regarding NEC in particular, it is a relatively new Contract and its ‘USP’ is that it is drafted in a way that is easy to understand (short sentences, present tense, lack of legal jargon) and the first clause is a clause requiring all parties to act in the spirit of mutual trust and cooperation. On this basis it is always pitched as a genuine collaboration Contract. (Although that is not always how it works out in practice!).
The other benefit of it is that the various Contracts (ECC, PSC, the sub-Contracts relating to both) are all very similar, so if you are familiar with the ECC, you will find it very easy to use the PSC. Ditto if you are familiar with the ECC and are using the ECC sub-Contract.
In addition, there are six price mechanisms which are all dealt with as options within the Contracts (three options for the PSC).
It is therefore very much a “pick and mix” form of Contract, which is helpful because again, it means that if you have used, for example, the ECC on the fixed price option, it is relatively easy to understand it if other pricing options are used.
It is aimed at benefiting all levels of knowledge of NEC. So, it is does not matter if this is your first “taster” of NEC or if you are familiar with it.
In addition, it is aimed at being the type of course where you can access it quite frequently if you have an issue and cannot understand (from the Contract or the guidance notes provided) how an issue should be dealt with.
First, I think it helps those new to NEC and those familiar with it.
I hope it will help learners understand how the NEC works and some of the trickier aspects.
I hope it will help people who are more familiar with it, in explaining how the Courts deal with those trickier aspects. Also, pretty much all of the case law with regard to NEC is included in this course, so if you are looking for an answer to a query and you were hoping the Courts may have provided that answer, you can review the course material to find out if this is the case.
If you are negotiating a point with another party, it should mean that you can go into those negotiations with confidence that, at the very least, no one has a definitive answer to a specific point.
As with most contracts the implications of not complying with the Contract vary depending on each clause.
However, I provide webinar and seminar training for CIHT in conjunction with CECA North East and CECA Yorkshire and Humber, so anyone interested in finding out more about NEC and the detailed implications and key risks, should consider joining the webinar or attending one of the seminars.
I have not seen any course that deals solely with NEC case law. As stated above, knowing where case law does cover a situation and also where it does not should give the users understanding and also confidence in operating the contract.
I enjoy getting into the detail of the case to work out the practical implications of running a project in regard to what the Courts have determined about a particular situation.
Also, I enjoy working out how particular cases might be used by the parties in terms of negotiating Contracts, and negotiating/arguing points in a dispute
That is such a relevant question for construction contracts generally and NEC.
With construction contracts generally, 10 years ago it did not really matter if the parties failed to operate the contract clauses. Hence we had a situation where people often referred to a JCT Contract being signed and put in the bottom drawer until the end of the project when any disputes would be resolved. Things have very much changed since then, both with JCT, NEC and other Construction Contracts.
Now the contracts are more and more about how the parties operate the contract throughout the works and there are penalties (in some cases) where parties failed to properly operate the contract. The biggest risk for the “paying party” is a smash and grab adjudication if it fails to issue a Payment Notice/Pay Less Notice under the contract/Housing Grants Act. Effectively, this means that the paying party must pay the sum that the contractor/professional applied for in its Interim Payment Application. This could be a huge risk for the paying party, as you can imagine.
For contractors and professionals, with NEC, in particular, there are numerous risks, but the main one is failing to notify a compensation event (covering variations, EOT and money) within set time limits. Failure to do so means that that party still has to carry the work out but has no entitlement to a remedy (money or time). Hopefully you can see how onerous this is, but at the moment, the Courts generally are enforcing such requirement.
There are also very strict programming requirements under NEC and although not as onerous as the CE mechanism above, the requirement for an up to date programme is very much a pre-requisite to any extension of time being granted.
In addition, of course, we have seen real problems with inflation, the supply of materials and skills shortages. They are all linked in that it is often circular in that one causes the other, but 5 and even 10 years ago it would be pretty much unheard of to have an inflation clause in a construction contract (unless it was a long-term framework). Obviously, lots of businesses have had their fingers burnt by this in the last 18 months or so.
In addition, the perineal problems of lowest cost versus value and the related issue of modern methods of construction.
Sadly, for the construction industry, there always seems to be a handful of really big challenges; the real challenge, though is in guessing what is coming around the corner next!
For more than 20 years Sarah has specialised in providing strong, solutions-based legal advice in heavyweight engineering and construction projects. Sarah deals with high value matters across a variety of sectors, including chemical works, energy, utilities, waste, and housebuilding.
Sarah often appears in the Technology and Construction Court (TCC) in relation to construction disputes. She also has in-depth experience of alternative dispute resolution methods including mediation, adjudication and arbitration (domestic and international), as well as dealing with arbitration ‘appeals’ and adjudication enforcement proceedings.
The opinions expressed in this article are those of the authors. They do not purport to reflect the opinions or views of the CIHT or its members. Neither the CIHT nor any person acting on their behalf may be held responsible for the use which may be made of the information contained therein.
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