NEC3 – THE PRINCIPAL CHANGES

So what’s new?

The Engineering and Construction Contract (NEC) was recently re-issued with numerous changes, under the title of NEC3. Although the basic format remains broadly the same, there are some important changes and improvements from the second edition, which had been in use since 1995. This article seeks to highlight the principal revisions and additions by reference to the NEC3 subcontract (the “purple book”).

Key date

Clause 11.2(9) allows for key dates to be included in the subcontract data. There are financial remedies available to the contractor if the subcontractor defaults in achieving such dates (see later). Equally, contractor’s changes to a key date qualify as a compensation event under clause 60.1(4).

Risk register

Clause 11.2(14) now introduces a risk register based upon risks listed in the subcontract data. This register must be kept updated under the early warning procedure (see later).

Changes to the subcontract

Clause 12.3 stipulates that no change to the subcontract has effect unless it has been confirmed in writing and signed by the parties. Clearly, subcontractors will need to be very careful to see that any “ad hoc” changes to the NEC procedures (ie to save the respective site managers from excessive paperwork etc) are formally confirmed and agreed in writing by both parties.

Early warning

The clause 16 procedure is now made more formal and should deal with the old problem of contractors who ignored the subcontractor’s warning notices. The contractor must enter the subcontractor’s early warnings in the risk register. Either party can call a risk reduction meeting , at the end of which the contractor must update the register to record the decisions taken, and issue the revised register to the subcontractor. If this involves a change to the subcontract works information the contractor must issue the necessary instructions at this point.

Prevention

Clause 19 caters for the effect of intervening circumstances which neither party could prevent. The contractor must give an instruction to overcome the prevention and the event qualifies for time and money as a “compensation event” under clause 60.1(19).

Set off and contra charges

The previous edition of NEC was silent in this respect. Clauses 25.2 and 25.3 now provide for the contractor to recover from the subcontractor those costs resulting from the latter’s default. This includes failure to achieve key dates, in which case the contractor has four weeks in which to assess his additional costs. This assessment can include an estimate of costs not yet incurred. However, the costs must be related to the same project.

Compensation events

Under clause 61.3 the maximum period allowed to the subcontractor for notification of a compensation event is increased from one week to seven weeks. This latter period of notice may be relaxed even further, under the same clause, if it can be shown that “the Contractor should have notified the event to the subcontractor but did not”.

Clause 61.4 provides that if the contractor neglects to reply to the notice within two weeks, then the subcontractor may notify him accordingly. If the contractor fails to reply within a further three weeks , then this is treated as acceptance of the notice as a compensation event.

Similarly, Clause 64.4 provides that if the contractor fails to reply to a quotation within the time allowed, then the subcontractor may notify him accordingly. If the contractor fails to reply within a further three weeks then the quotation is deemed to be accepted.

A new clause 63.4 emphasises that the rights of the parties are restricted to those set down in the subcontract. This appears to rule out common law claims once and for all.

Options C, D and E - Price for work done to date.

A major cash flow problem has been resolved in clause 11.2(29). Under the second edition, the subcontractor was only entitled to reimbursement of those costs which he had already paid out to sub-subcontractors and suppliers. Payment will now be based on a forecast of costs that will have been paid by the next assessment date.

Adjudication

There are two options available, W1 being for works not covered by the Construction Act and W2 where the Act applies. It is notable that the complex dissatisfaction procedure has now been removed from the latter, and referral may now be made at any time.

Secondary options

These have now been re-arranged and some new options introduced, including X1 (price adjustment for inflation) X18 (limitation on liability) and X20 (key performance indicators).

Conclusion

There are some important changes in this third edition of the NEC contract. Of particular value to subcontractors are the formalisation of the early warning system, the changes to the compensation event procedures, particularly the new seven week period for giving notice, and the relaxation of the cash flow arrangements under the cost reimbursable options. However, it will still be just as vital to comply with the requirements and time scales in every respect. Otherwise, all entitlements may be lost for ever.

Back to John Russell’s Home page.

Back to Jack Russell column contents.

John Russell

Construction Contracts & Training Consultants (Established 1984)

Cheshire CW4 7DP Tel : 07770 986444

Email : swsubbie@globalnet.co.uk Website: www.jrconsultant.co.uk

“Jack Russell” of the Electrical Times and author of “The Streetwise Subbie”