NEC4 Suite of Contracts – Overview

The NEC family of contracts are deliberately written to formalise the requirement to carry out good practice project management systems that the respective Parties should want to be doing for themselves anyway. The contractual rules should assist the project teams in understanding the status and associated liability for both time and cost for the lifecycle of the project.

The contracts intend to provide mechanisms for Contractors and Clients to work collaboratively, and are designed to contribute to the effectiveness of the management of the work and the understanding between the two parties.

They are founded on a number of key principles, which include:

  1. Foresight applied collaboratively mitigates problems and shrinks risk
  2. A regularly accepted programme allows the Parties to understand where they are in terms of liability and to be able to assess future progress and change. It also avoids the inevitable arguments over disruption that would be brought about with alternative retrospective assessments that tend to happen under other forms of contract within the industry. This regularly revised up-to-date and realistic programme maintained by the Contractor is allows joint decision-making between the two Parties.
  3. Providing a prescriptive process for assessing change (compensation events) for which there is a strict series of processes to follow and within certain timescales. These result in a contractual conclusion, with the event being “implemented” and not liable for subsequent change or challenge from either party.

The NEC family form a suite of contracts, with NEC being the brand name for the “umbrella” of contracts. When it was first launched in 1993, it was simple the “New Engineering Contract”. Under NEC2 (published 1995) this specific contract was renamed the “Engineering and Construction Contract” which is the main contract used for any construction based project. It now sits along side a number of other contracts that together should mean that the NEC suite is suitable for what ever stage of a lifecycle the project is at and what ever party you are within a project. The latest versions of the contracts is NEC4, which was published in 2017. NEC4 is now being widely used, although it will be several years before the use of NEC3 contracts are phased out as many long term frameworks still in existence were awarded under NEC3. The contracts available within the NEC4 suite are: 

Engineering and Construction Contract (ECC)

Suitable for any construction based contract between the Client and a Contractor. It is intended to be suitable for any sector of the industry, including civil, building, nuclear, oil & gas, etc. Within the ECC contract there are a choice of six options of which the Client will choose which they deem to be the most suitable to give them the best cost certainty/value for money on that project:

  • Option A: Priced contract with activity schedule
  • Option B: Priced contract with bill of quantities
  • Option C: Target contract with activity schedule
  • Option D: Target contract with bill of quantities
  • Option E: Cost-reimbursable contract
  • Option F: Management contract

The main difference between the options is how the Contractor gets paid,  and how risk is allocated. A Client can include the requirement for the Contractor to be doing elements or all of the design by including such requirements within the Scope. This avoids the need for a separate “design and build” option within the NEC family of contracts.

The same types of clauses can be mirrored to subcontractor’s/designers by choosing one of the contracts within the NEC family.

The Engineering and Construction Subcontract (ECS)

Very similar in detail and complexity of contractual requirements to the ECC contract above, but allows the Contractor to pass down terms to a Subcontractor imposing most of the clauses that they have within their headline contract. There is very little difference between the ECC and the ECS, other than the names of the Parties are changed (to Contractor and Subcontractor), and some of the timescales for contractual responses are altered to take into account the timescales required in the ECC contract.

The Engineering and Construction Short Contract (ECSC)

This is an abbreviated version of the ECC contract and most suitable when there is considered “low risk” (not necessarily low value) on a project with little change expected. This contract is still between the Client and Contractor but does not use all of the processes of the ECC making it simpler and easier to manage and administer.

The Engineering and Construction Short Subcontract (ECSS)

Allows the Contractor to sub-let a contract down the line to a Subcontractor on a low risk project, particularly when the Contractor is engaged under an ECSC with their Client.

The Professional Services Contract (PSC)

This contract is for anyone providing a service, rather than doing any physical construction works. Designers are the most obvious party that fit into this category. Whilst they are producing a design for a Client or Contractor, they would use the clauses and processes identified within the PSC. Most of the clauses within this contract are the same as that in the main ECC contract, so that all Contractors, Designers and Subcontractors have pretty much the same obligations and processes to follow as each other. NEC4 now also introduces a Professional Services Subcontract version so a Contractor can pass terms down to a Designer who is subcontracting to them.

Framework Contract (FC)

Parties enter into a “framework” of which work packages will then be let during the life of that framework. Any individual projects will then be awarded using one of the other contracts within the suite, meaning that the Parties follow the headline clauses within the framework contract (which is a fairly slim contract) and then the individual clauses within the chosen contract for that package. Different work packages can be let using different contracts during the life of the framework.

Term Service Contract (TSC)

For the Parties on a project that is operational or maintenance based, e.g. maintaining highway signage, where the contract is to ensure that a certain standard is maintained for a fixed period of time. This contract is more for maintaining existing rather than constructing new works, but can include some amount of betterment. There is also a “Term Service Short Contract” for simpler schemes where the project is a relatively low risk project and is an abbreviated version of the main TSC. NEC4 now also introduces a Term Services Subcontract version so a Contractor can pass terms down to a Subcontractor who is subcontracting to them for maintenance type work.

Supply Contract/Short Supply Contract (SC/SSC)

This type of contract is for a supplier of supplies or goods to a project, and puts extra contractual requirements on them during their procurement/manufacture period. The Supply Contract is for recommended for large value bespoke designed items of procurement, with the Short Supply Contract potentially being for more run of the mill procurement items on a project. These contracts for example require suppliers to notify early warnings of potential issues, produce and maintain a programme showing how they will deliver on time and also include delay damages for late delivery.

Adjudicator’s Contract (AC)

If there is a dispute between the Parties on a project then the Adjudicator will follow the clauses within this contract in order to reach a decision on that dispute.

Design, Build and Operate (DBO)

A new contract introduced within NEC4 which is for a fairly niche sector of the industry. These contracts are where the Client wants the Contractor to (as the name suggests) to design and build a facility but then to also run it for the Client for a fixed period of time. It in effect combines the traditional ECC design and build element with a TSC maintenance element as one single contract. An example might be to design and build a power station, and then run that facility for the first ten years of its operation.

Alliance Contract (AC)

Another new contract introduced within NEC4 which again will be fairly niche sector of the industry. These allow a Client to set up a single contract where multiple Parties all sign up to a single common agreement. All of the Parties will then live/breathe/succeed/fail together so is very much a collaborative contract where all Parties are trying to help each other to achieve a common goal to the maximum benefit (or least pain) to all of those under the agreement.

Guidance Notes and Flowcharts 

For each of the different contracts listed above each comes with its own set of guidance notes and flowcharts which should aid understanding of the intent of the drafted clauses. NEC4 now includes the equivalent of two books of “guidance notes” to accompany the contracts. Each contract has its own two books of guidance e.g. Planning an ECC Contract and Managing an ECC contract (with other contracts like PSC and TSC having their own equivalent versions of these two books). The “Planning” book is guidance around putting the contract together in terms of contract data, Scope etc, and the “Managing” book more specific guidance around understanding the practical processes of the contract. NEC4 no longer has guidance notes books as part of the hard copy suite, but they are available electronically instead.