NEC4: new and improved? | Construction News

On Mar 23, 2023

Kirsteen Milne is legal director at Brodies LLP

The New Engineering Contract 4 (NEC4) was published in 2017 and has seen a few amendments, with revisions in January 2019 and October 2020. The 2023 revision incorporates those amendments and secondary option X29 (from 2022), as well as introducing some new amendments.

So, what impact is this likely to have for contractors? We’ll focus here on the amendments to the Engineering and Construction Contract (ECC), although most amendments have been made to all of the suite of contracts. There are essentially five amendments to be aware of.

Five changes

1. X29: This is the “climate change” option, which allows the client to set climate-change requirements that must be complied with by the contractor, eg, levels of recycling, use of renewables on site etc, with the option of performance targets and incentives/penalties. The inclusion of this within the 2023 revision may mean that it is more actively considered when clients are drafting contracts and therefore could encourage clients to use it more. As X29 is a recent clause, it is not clear yet how great the take-up of this has been.

2. X22 – early contractor involvement. We have seen an increase in the use of X22 in the past few years. The amendments:

Allow the project manager and contractor to agree a change to the site information during stage 1
Provide that compensation events (CE) under stage 2 are judged against the date of the notice to proceed rather than against the contract date, therefore information gathered during stage 1 can be taken into account in considering CEs
Provide that CEs before the date of the notice to proceed are deemed to be included within the changes in prices and completion date in the notice to proceed.

The latter is intended to settle CEs before stage 2 works commence so that parties are starting from a “clean slate”. It is likely that parties using X22 may make further changes to best align the clause with the process they require but these amendments should assist.

3. Amendment to the schedule of cost components (SCC) and short schedule of cost components (SSCC) to take account of working from home. During COVID-19 and thereafter, there has of course been an increase in the number of staff working from home, and that was difficult to align with the definition of working areas in the SCC and SSCC, which are usually restricted to the site, any depot etc, being those areas which are necessary for, and only used to deliver, the required works. This is dealt with in SCC by specifically naming in the contract data people whose costs can be recovered as defined cost even if they are not in the working areas and the SSCC is amended so that the costs of people who would normally be based in the working areas can be recovered as defined cost so long as they are working on the contract.

4. Using the supplier’s design – clause 22.1. The ability of the client to use the contractor’s design has been clarified and extended to include documents prepared for design – this would often be amended (and likely still will be) so that an irrevocable, royalty-free licence with the right to grant sub-licences is granted (including after termination), and therefore this amendment is unlikely to have much impact.

5. Adjudication. Dispute resolution option W2 has now been amended to bring it in line with the requirements of the Housing Grants, Construction and Regeneration Act 1996. The adjudication timetable is now a matter wholly for the adjudicator, and the previous, often impractical requirement for all submissions to be made within 14 days has been removed.

In summary, the improvements made by the January 2023 amendments further enhance the NEC4 suite of contracts following constructive suggestions from users in the industry.

A schedule of amendments is available to reflect these changes and NEC4 contracts published from January 2023 will include the amendments. Contractors should check tenders to see if they have been included – while some of the above are more for the benefit of the client, or at least the project in terms of additional processes and requirements (eg, X22 and X29), the amendments to the schedule of cost components and W2 are useful for contractors.