Using NEC contracts in Ireland and Northern Ireland – five practical tips

Its collaborative ethos and focus on proactive risk management offers a welcome alternative to more traditional, reactive forms of contracting like the Public Works Contract (PWC) and JCT. 
However, the benefits to NEC are often only realised where the contract is properly understood and rigorously administered.  It demands a fundamental change in approach from all the parties and a different mindset when approaching risk allocation, management and the treatment of claims.

We have set out below some practical tips for employers, contractors and project managers seeking to maximise the benefits of NEC, including avoiding common pitfalls that we have come across on projects.

1. Invest in training

NEC does not simply have clauses and a different structure; it represents a different way of working whereby risks are identified and managed early on and then throughout the course of the project, rather than being stored up until the end.  It is therefore important that the entire project team receive early training on the core clauses, early warning mechanism and compensation event regime.

Workshops at the inception of project can help ensure that parties understand their roles, notice requirements, timescales (which can be a bar to entitlement if not met) and the importance of prompt, transparent communication.

Teams who lack NEC familiarity often default to reactive behaviours, undermining NEC’s collaborative mechanisms. Training should be ongoing and refreshed at major project milestones. It is also worth considering hiring a project manager to administer the contract and manage the project who has strong NEC experience, especially if it is your first project using NEC.

2. Understand your options

NEC offers a broad family of contracts (ECC (engineering and construction), PSC (professional services) and TSC (term services) to name a few), each with multiple options for risk allocation and pricing, depending on the project need and appetite for risk.  For example, Option A is technically a fixed price lump sum contract providing cost certainty and more simple administrative, where scope tends to be well defined.  Whereas Option C (Target Cost) can suit projects where scope is not well defined and the parties are willing to share some financial risk, which can be ideal in more volatile markets.  Selection should be driven by required risk profile and appetite for risk, design completeness, market conditions and cost certainty requirements.

If amendments are required once the option is selected, this should be via the use of Z clauses only, but ideally these should be kept to minimum, be clear and not conflict with the remainder of the contract.  One of the fundamental principles of NEC is clarity, aided by it use of clear language with clauses drafted in the present tense.

The Public Works Contract has been the primary form of contract used in Ireland for public works projects since its introduction in 2007. Therefore its key clauses and the operation of same are well known in the Irish market. This has perhaps created a culture within Irish public bodies of expecting contracts to be fixed, tightly controlled, and highly standardised. When public bodies switch to NEC, there can be a tendency to attempt to “correct” or “tighten” the NEC by adding amendments, particularly in respect of the Z clauses, which undermines NEC’s intended clarity and simplicity. Best practice is therefore to amend only where absolutely necessary, ensure consistency with Irish and Northern Irish law (particularly payment and health and safety legislation), and clearly record changes in the Contract Data. Each amendment should be tested against NEC’s core principles of clarity, simplicity and mutual trust.

It is worth noting the NEC4 has made contractual accommodations for Ireland and Northern Ireland through the optional Y(IR)1 clause and Y(NI)1 to ensure that NEC4’s payment and dispute resolution provisions comply with the Construction Contracts Act 2013 and the Construction Contracts (Northern Ireland) Order 1997 respectively. These optional clauses exist only for the Irish and Northern Irish market and adapt NEC4 to Irish and Northern Irish legislation. However many feel they does not adequately do so and so often opt to amend the payment clause via the Z clauses rather than use this option.

3. Comply with early warnings and the compensation event regime

The early warning mechanism underpins NEC’s risk management philosophy.  It is not a box ticking exercise or a formality to comply with – parties should pro-actively manage risk by raising early warnings and fully engage in early warning meetings in order to agree mitigation measures. The habit of throwing the contract in the drawer and dusting it off only at the end of the Project or once an issue/dispute has arisen simply does not work under NEC.

For the early warnings process:

• Prepare the risk register at the commencement of the project – this is not about allocation of responsibility, but the parties mutually dealing with possible issues that can arise and putting in place mitigation strategies;
• Ensure risks that may increase cost and time are notified promptly- failing to do so can affect the contractor’s entitlement to time and money;
• Hold regular early warning/risk reduction meetings which document how risks are to be dealt with between the parties.  Again, this is not about blame, but about a collaborative approach to mitigating issues.

For compensation events:

• Issue notifications quickly and clearly – agree a template if possible and use a digital platform to help the process.
• Comply with the time bar provisions, otherwise the contractor loses entitlement (this will be upheld by the Courts, so contractors must be vigilant). Note that if the risk is the subject of a previous early warning notification, this can set the clock running in terms of knowledge.
• Provide detailed, evidence-based quotations (including defined cost build-ups) in accordance with the timescales – in turn, Project Managers should adhere to the timescales for a response otherwise events (and quotations) can be deemed accepted
• Maintain contemporaneous records to support ‘Defined cost’

Whilst it is not always easy for contractors to flag potential or actual issues to the client, the ethos of the NEC requires issues to be dealt with timeously and during the course of the project. Clients should also resource the project manager function adequately to allow proper, timely assessments of Compensation Events and avoid the build-up of unresolved events. This does mean allocating more resources to project management but in return hopes to deliver a project in a timely manner with no surprises over costs/claims at the end.

4. Do not underestimate the Programme

Under NEC the programme is a contractual tool, not merely a planning document. It drives entitlement to time and, in many cases, money. Project managers must rigorously assess and accept programmes, and contractors must ensure that submissions are realistic, logic-linked and regularly updated. Failure to maintain an accepted programme can severely undermine the operation of the compensation event regime. Best practices include:

• Submitting a fully logic-linked programme with clear critical path analysis.
• Ensuring programme updates at the required intervals (typically every four weeks).
• Integrating compensation events promptly and transparently.
• Using a digital platform to easily keep track of programme versions and the accepted programme

A well-maintained programme is one of the most effective tools for dispute avoidance under NEC.

5. Get the Scope right

The Scope is fundamental under NEC as it sets out what the contractor is to provide and how – the contractor’s obligation is to provide the works “in accordance with the Scope”. Whether an instruction is a compensation event will often turn on whether it is a change to the Scope. Therefore, inconsistencies and ambiguities within in the Scope can quickly translate into disputes regarding entitlement, valuation and time. Employers should ensure that the Scope is clear, coordinated and consistent with the obligations of the contractor and requirements of the project.

Conclusion

Ultimately, NEC is about collaboration and not just compliance. This requires leadership from clients and senior project stakeholders, clear behavioural expectations and a willingness (for all parties) to address issues early rather than allowing them to harden into formal disputes and also an investment in project management.  Whilst this may not always come naturally to contractors, they will find that their entitlement to additional time and money may be reduced (or removed entirely) if they do not adopt this approach.

When implemented properly, and taking on board the practical tips outlined above, NEC can deliver successful project outcome through proactive risk management, improved contract administration and a reduction in costly end of project disputes. This will, however, depend far less on the words on the page of the contract than on the behaviours of those administering it.