Since publication in June 2017, NEC has sought to keep its NEC4 contracts up to date by publishing sets of amendments in January 2019 and October 2022. The NEC has recently published a further set of amendments to the NEC4 suite of contracts following feedback and ongoing dialogue with industry users. Allan Owen and Francesca Gallagher look at the changes.
A number of the latest amendments aim to bring the drafting of the various subcontracts and short contracts in line with that of the NEC4 Engineering and Construction Contract (ECC) and Professional Service Contract (PSC), however, there are also some notable amendments for users of the ECC and PSC.
A schedule of all the amendments is available for each contract here.
Any NEC4 contracts published from January 2023 will contain these January 2023 amendments as standard. Clients using earlier publications or that hold existing NEC4 licences will need to consider the merits of including the new amendments in future contracts on a case-by-case basis.
Below, we set out the key changes along with our initial reflections. The contracts to which each amendment applies are set out in brackets.
Working from home and other locations outside of the Working Areas / Service Areas (ALC, DBOC, ECC, ESC, FMC, FMS, TSC and TSS)
Since COVID-19 lockdowns and the subsequent increase in people working from home, a common issue that has arisen in negotiation of NEC4 contracts has been the recovery of Defined Cost for people that are not working in the ‘working/service areas’. Different clients have approached amendments to the Schedule of Cost Components and Short Schedule of Costs Components in different ways, but NEC’s latest amendments offer a standardised approach.
It is important to note that Defined Cost recovery for people working from home will not be permissible for all of the Contractor’s people by default; only the Defined Cost of those people listed in the Contract Data whose normal place of working is not the ‘working/service areas’ can be recovered.
This amendment brings the recovery of people Defined Cost in line with modern practices, but clients should consider whether they wish to add any supplementary notes to the Schedule of Cost Components setting parameters for recovery of Defined Cost under this new limb.
Secondary Option X22 – Early Contractor involvement (ECC)
Substantive amendments have been made to the Optional Early Contractor Involvement (ECI) clause under the NEC4 ECC principally to provide clarity regarding the process between Stage One and Stage Two.
Changes of note include:
- that where a project proceeds to Stage Two, compensation events which are ordinarily judged against the Contract Date will now instead be judged against date of the notice to proceed to Stage Two. For instance, the physical conditions compensation event which refers to the judgement of an experienced contractor ‘at the Contract Date’ will now be based on the judgement of an experienced contractor ‘at the date of the notice to proceed to Stage Two’. This is likely to be welcomed by clients as the deemed knowledge of an ‘experienced contractor’ will now be rebased to include information accumulated throughout Stage One,
- that any compensation events that occurred during Stage One are deemed to be included in the changes made to the Prices, Completion Date and Key Dates in the notice to proceed to Stage Two. This is another helpful amendment (which was often included by clients when issuing notices to proceed to Stage Two) allowing the parties to enter into Stage Two with a clear understanding of the agreed risk allocation between them, and
- that any amount due on termination will apply only to the works in Stage One where the works do not proceed to Stage Two and that that no incentive payment will be due if the works do not proceed to Stage Two.
Contractor’s liability for design limited to reasonable skill and care (ECSC and ECSS)
In the ECSC optional drafting has been included allowing the Client to reduce the Contractor’s obligation for any design they produce to reasonable skill and care – this is similar to the X15 (Contractor’s Design) drafting seen in the NEC4 ECC. Previously, the Contractor was liable for any failure by default. The Client can now choose whether to instead apply a reasonable skill and care standard by selecting the relevant option in the Contract/Subcontract Data.
Where a reasonable skill and care standard is chosen, there is a corresponding requirement for the Contractor to provide professional indemnity insurance and the Contractor benefits from a compensation event where it corrects a Defect for which it is not liable as it exercised reasonable skill and care.
This is a useful amendment given the reluctance (and in many cases unwillingness) of contractors to accept liability for design on anything other than a reasonable skill and care basis due to such liabilities being uninsurable.
Secondary Option X29 (Climate Change) (all main contracts)
NEC published X29 (Climate Change) as a new Secondary Option in July 2022 to assist clients in securing their net zero goals. This Option has now been incorporated into the main contracts (as relevant). Please refer to the following articles in which we previously considered new Option X29:
- A New NEC Option to tackle greenwashing in the construction industry;
- New NEC4 secondary Option X29: Climate Change clause and
- The Role of Standard Form Construction Contracts in Achieving Green Goals
Using the supplier’s design (ALC, DBOC, ECC, ESC, FMC, FMS and SC)
Previously, clause 22.1 provided rights for the Client to use and copy the Contractor’s design; this has now been extended to ensure that the Client can use and copy the suppliers design and documents prepared for design. This change has also been incorporated into the relevant subcontracts.
Adjudication (all contracts featuring Y(UK)2)
The dispute resolution clause has been amended to ensure compliance with the Construction Act 1996. W2.3 now provides that the Adjudicator decides the procedure and timetable for the adjudication.
Limit of liability (ECSC, ECSS, FMSC, FMSS, SSC, TSSC and TSSS)
To align each of the short contracts with the main contracts, an optional provision for the Client to include a total limit on liability in the Contract/Subcontract Data has been added.
Damage to the Client’s property (FMSC, FMSS)
This provision has been amended clarifying that the Service Provider is liable for loss or damage to the Client’s property which arises from the Service Provider providing the service. If it wishes to do so, the Client may also limit the Service Provider’s liability for such losses.
Payment on termination (SSC)
The payment on termination provisions in the Short Supply Contract have been aligned with other NEC4 contracts by providing compensation to a Supplier where the contract is terminated due to the Purchaser’s default or for the Purchaser’s convenience. The compensation payable is 5% of the estimated amount that would have been due at completion had there been no termination (taking into account the quantities, rates and prices in the price list).
For further insight and resources on local government legal issues from Sharpe Pritchard, please visit the SharpeEdge page by clicking on the banner below.
This article is for general awareness only and does not constitute legal or professional advice. The law may have changed since this page was first published. If you would like further advice and assistance in relation to any issue raised in this article, please contact us by telephone or email This email address is being protected from spambots. You need JavaScript enabled to view it.
