What’s in NEC4’s optional sustainability clause?

Charlotte Eccles is senior associate and Chris Hallam is partner at CMS Cameron McKenna Nabarro Olswang LLP

We are living on the verge of a climate emergency and the built environment accounts for more than a third of UK carbon emissions. That’s not a statistic we can be proud of, but every cloud has a silver lining. For construction, it’s a huge opportunity to innovate and reinvent the industry, and in doing so make a massive contribution to the drive to net – or even absolute – zero.

There have been some tangible successes already. Last year, Mayfield, a significant Manchester urban-development scheme, carried out the first commercial concretene pour – a graphene-enriched concrete with a carbon footprint about 33 per cent lower than regular concrete.

Climate change wording

That’s a good start, but the industry has much more to do. In particular, it has not yet widely adopted climate wording or targets in its contractual arrangements, save for very specialist projects.

The NEC4 supply contract aims to change this and has published, on a consultative basis, a new optional sustainability clause: X29.  It includes:

  • a requirement to include Climate Change Requirements in the scope, and a failure to meet them will be a defect.
  • the inclusion of a performance table that incentivises the contractor’s performance of certain targets. These are not linked explicitly to the Climate Change Requirements and so may be different targets. The performance table is capable of being adjusted through compensation events.
  • the need for an early warning to be provided where it is considered that the Climate Change Requirements cannot be met.
  • an obligation for a Climate Change Execution Plan to be produced and updated from time to time.
  • a requirement for the scope to set out the extent to which the Climate Change Requirements are disclosable; e.g. to enable an organisation to confirm it has met its climate targets.
  • the ability for the contractor to propose changes that reduce the impact of the project on the climate, either during the build or in the future use of the project.

Other approaches

The NEC is not the only organisation seeking to use legal drafting to tackle climate change. The Chancery Lane Project, a worldwide pro-bono venture, publishes net-zero aligned clauses for use across a range of commercial contracts. These can be adapted with further bespoke drafting where the requirement is for absolute zero.

The construction clauses range from a requirement to design projects to withstand climate change to offsetting carbon emissions and provisions similar to the NEC clause; i.e. rewarding a contractor for compliance with required targets.

How will it all fit in?

While all this is undoubtedly positive and a great step in the right direction, thought needs to be given to how these provisions will sit within the current working practices of the industry.

“NEC has been clear that its intention is not for contractors to bear all of the risk of reducing carbon emissions, but for this to be a wider project goal”

The typical approach in recent decades has been to pass risk down to the supply chain. This model is becoming increasingly unworkable, not least because of the market and pricing instability currently being experienced, particularly for commodities and shipping – all making it more difficult to price effectively.

At the launch of X29, NEC has been clear that its intention is not for contractors to bear all of the risk of reducing carbon emissions, but for this to be a wider project goal.

This makes sense: construction’s carbon emissions cannot be solved by the supply chain alone and the NEC drafting attempts to drive this behaviour.

Impact and cost

For example, setting down Climate Change Requirements necessitates consideration at all stages of the procurement process and by all stakeholders as to the likely impact of the project and what steps can be taken to address this, as well as the cost. It will also require all parties to monitor and record the progress of the scheme against the requirements and targets.

Further, the early stages of transition will almost certainly require novel solutions and methods of working. There is a question mark over how this will fit into the common design-and-build structure with single-point responsibility. A contractor may be deterred from using an untested, but potentially carbon-saving method of working if it is concerned about taking on liability for cutting-edge technology.

In recent years, there has been a huge drive for construction to become more collaborative, and to promote the benefits of this for more equitable risk management and better project outcomes. Climate change, the ultimate global risk, may provide a perfect demonstration of the possible benefits. We owe it to our children and grandchildren to at least try.

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