13 April 2017 by Cliffe Dekker Hofmeyr Construction and Engineering

NEC4: A step up from the NEC3?

With time, it becomes necessary for construction and engineering contracts to be updated. This alert identifies the differences in the latest iteration of the NEC: the NEC4. 

The NEC4 introduces two additional contracts. Firstly, an Alliance Contract which assists parties to achieve assimilation in segmented projects. Secondly, a Design, Build and Operate contract which recognises the need for a cradle-to-grave engineering and construction contract, where works need to be built, operated and maintained.

The NEC4 also brings about amendments to certain terms contained in the NEC, creating harmony between the NEC contracts. For work to be provided, the term ‘Scope’ has replaced the terms ‘Works Information’, ‘Service Information’ and ‘Goods Information’. In terms of construction security, the NEC4 recognises that it is not always the parent company that issues security on behalf of a contracting party. Consequently, the NEC4 amends the nomenclature of secondary option X4 from ‘Parent company guarantee’ to ‘Ultimate holding company guarantee’. Also to be noted from a security perspective is the introduction of a new secondary option clause which relates to the type of undertaking often described as ‘collateral warranties’.

In terms of clause 31.3 of the NEC3, the contractor is required to submit a programme to the project manager for acceptance within two weeks of receipt. The clause does not make provision for the circumstance where no response is received from the project manager in respect of the submitted programme. Remedying the uncertainty, the NEC4 provides a deeming provision to the effect that the programme submitted by the contractor shall become the Accepted Programme if the project manager fails to respond within the time period.

The contractor is now able to make suggestions and proposals to the project manager by way of an amendment to the Scope. Under the NEC4, the contractor may propose acceleration to obtain Completion at a date prior to the scheduled Completion Date. Such proposal is subject to the project manager’s approval. This differs from clause 36 of the NEC3, where acceleration can only be proposed by the project manager.

The NEC3 perhaps fell short in protecting the intellectual property rights of the owner of proprietary technology. There are provisions in the NEC4 affording such protection, as well as providing the manner in which intellectual property may be used.

A new core clause has been added to the NEC4 stating that a termination right may be triggered should a party to the agreement commit acts of bribery and corruption.

Lastly, the NEC4 contains an additional compensation event to those already denoted in clause 60.1 of the NEC3, namely where a quotation issued by the contractor at the request of the project manager is rejected by the project manager. In such an instance, the contractor has a claim against the project manager for the costs it incurred in preparing the quotation.

The NEC4 is a welcomed update to the NEC3 suite of contracts. It is important that all contracting parties inform themselves of the differences between the NEC3 and NEC4.

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