Page 1

This article was first published on LexisPSL Construction on 10 April 2014. Click here for a free trial of LexisPSL.

Is the use of NEC3 on the increase?

10/04/2014 Construction analysis: Nick Lane, construction and engineering partner at Mishcon de Reya, and Andy Mather, partner in the construction and engineering group at Macfarlanes LLP, consider the use of the NEC3 suite of contracts and what it means for the construction industry.

There appears to be a general increase in use of the NEC3 suite of contracts in the construction industry--is this your experience in practice?
Nick Lane (NL): I have come across a few (normally quite heavily amended) NEC3 contracts being used in the private sector and I'm aware that it is being used more frequently, but still nowhere near as frequently as the JCT form. Equally, I hear less and less of the GC/Works form, which has not been updated. I suspect that much of what could have been left on that form has been absorbed by NEC3. The ICE's jettisoning of the ICE form (the cudgel then being taken up by CECA and ACE) may also have increased the use of NEC3 because of initial question marks about the ICE's future. Andy Mather (AM): Yes, we have seen an increase in the use of the NEC3, although this has not been perhaps as great as some reports might suggest. The industry in general seems to have become more comfortable with the suite and there is greater experience of implementing the project management requirements which are involved. In particular, we are encountering it more on the infrastructure side. However, the increase is not universal across the industry and, for example, there is still little appetite to use the NEC3 within our domestic developer client base.

Do you think the increased use of NEC3 contracts is a positive thing for the construction industry?
NL: Not especially. It's trendy to be in the NEC3 camp and there are vested interests there, particularly as NEC3 has the dubious seal of approval from the UK government. While there are some up sides to NEC3, there are also deficiencies in it. We are starting to see more litigation about it. Take, for example, the recent cases of AMEC Group Ltd v Secretary of State for Defence [2013] EWHC 110 (TCC), [2013] All ER (D) 93 (Feb) and Atkins Ltd v Secretary of State for Transport [2013] EWHC 139 (TCC), [2013] All ER (D) 53 (Feb). This may be partly due to its increased use, but it is equally possible that its ambiguous wording is giving rise to disputes. That the form is marmite was confirmed by Akenhead J's balanced comments about NEC3 in the Atkins case. AM: I think that having a focus on promoting effective project management techniques and on engendering a more collaborative and cooperative approach to projects is a good thing. However, I have a residual concern, like a number of lawyers, with the drafting approach of the NEC3 contracts and a number of the provisions included--the contracts are not suitable unless all parties have truly 'bought in' to the philosophy and an increase in their use is likely to highlight more and more the risks in using the form where this is not the case. Perhaps the suite's mere existence, however, is positive if it engenders debate on those issues. Like the SCL

Page 2

Delay and Disruption Protocol, while not universally loved, I am sure the NEC suite has ensured that issues such as collaboration and project management are at the forefront of people's minds and are being debated.

What sort of projects are you typically seeing NEC3 contracts being used for?
NL: Contracts for public sector work, but still relatively little in the private sector. AM: The most prevalent use is still in the public sector and infrastructure sphere, likely driven by the government's endorsement of its use on public project procurement. As mentioned, we do not see much uptake on domestic development projects.

Which of the main payment options do you see used most frequently with the NEC3 ECC contract?
NL: Option C (target contract with activity schedule). AM: Options A and B are the most popular of the payment options which we see used--employers are still attracted to the greater certainty associated with a lump sum price. Target cost does arise but is more of the exception than the rule.

Are you seeing an increase in the use of collaborative contracts generally at the expense of JCT Standard and Design & Build contracts?
NL: My perception is that there is something of a retrenchment going on and that the attractions of the JCT D&B form are proving very durable. AM: There does appear to have been a slight encroachment of collaborative contracts (mainly the NEC3) onto JCT territory. Perhaps more strikingly, however, we are seeing a trend to add collaborative obligations into other standard forms, particularly the JCT. As primarily a contentious lawyer, I cannot say I support this trend--while the intentions are good, there is very little certainty over the precise legal effect (if any) such provisions will have in any given circumstances on the parties' other rights and obligations. The parties are free to adopt a collaborative approach even if it is not recorded in the contract and, to my mind, inserting clauses setting out general and undefined obligations to cooperate and collaborate is merely likely to increase the scope for an argument when things go wrong. However, I appreciate that it can be difficult to justify commercially in contract negotiations why these provisions should not be included.

What do you think is the biggest strength of the NEC3 contracts?

NL: Risk register and early warnings. However, NEC3 is no longer unique in these respects. For example, CPC 2013 provides for both and the recent draft ICC Infrastructure Conditions of Contract (February 2014) provides for early warnings. AM: The focus on promoting effective project management and in resolving project issues as they arise is (like the collaborative working ethos) a commendable aim. With parties willing and able to follow the philosophy of the contract and to operate the contractual machinery properly, the form may work well. Interviewed by Nicola Laver. The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.