Not lost in translation: Using NEC3 contracts abroad

Last year the NEC panel of the Institution of Civil Engineers invited me to assess whether there might be any intrinsic or other legal difficulties in using the NEC3 contract, particularly outside the UK.

In a nutshell, I thought that there were no real difficulties. With a couple of exceptions, the core clauses of NEC3 do not contain any significant features that would make it unwise to use it abroad, but there are some key points to look out for.

I have always been a fan of the NEC. From its inception I thought that it was exactly what the UK construction industry required (a view shared later by Sir Michael Latham). Although devised by civil engineers, it can and should be used in other sectors.

Obviously, its success is dependent on the care taken by its participants. It requires genuine collaboration and a real determination to eschew confrontation. The result of this is that differences that might otherwise reach the courts or arbitration are almost always resolved.

The framework and language of the NEC3 are intended to avoid having to use judicial decisions to make the core clauses work. Judicial decisions can distract, rather than illuminate – look at other forms of contract.

In the main, given the approach called for, the core clauses speak for themselves. The use of “plain English” and the lack of the jargon that most contracts use, mean that attention can be paid to what is truly intended and not on what has to be presumed. As such, it should be possible for the core clauses to be used outside the UK with no more than the usual checks.

However, one check that should be considered is illustrated by the 2005 decision in Costain vs Bechtel. In this case Mr Justice Jackson thought that there were good arguments that, in the second edition of the NEC/ECC contract, the project manager was also a “certifier”: that is, when assessing sums payable to the contractor, the project manager’s duty was to act impartially as between the employer and the contractor.

If the NEC3 is used outside the UK, but in a place where the law is comparable to the UK, it would be prudent to assume that what the judge said would apply. But the concept of impartiality is not spelled out in the NEC. Should the core clauses be specific about such a duty? On balance, I think not. For example, section five, which deals with payment, is clear enough.

You may have to justify the concept of a person hired by one party acting impartially

In some countries, however, it may be necessary to justify the concept of a person hired by one party as its agent acting impartially and possibly against that party’s interest.

Most laws uphold the parties’ agreement (unless it conflicts with policy), so it may be enough to write in a clause about impartiality. NEC3 encapsulates basic legal principles, but expressing them as part of its code should help it be accepted outside the UK.

The NEC contains a key provision that might bridge its differences with UK law. Clause 10.1 says that the employer, contractor and project manager shall act “in a spirit of mutual trust and co-operation”. This is tantamount to requiring the parties to act in good faith – an overriding legal obligation in virtually all non-common legal systems. The NEC phrase connotes not only honesty and reasonableness but may also oblige someone to do more than the contract calls for if it is to be performed truly co-operatively.

There are some parts of the contract in which clarification might be beneficial. For example, the definition of risk register – clause 11.2(14) – is awkward, while the definition of key dates – clause 11.2(9) – does not match the clear intention stated in the guidance notes.

The status of the guidance notes needs attention, as outside the UK they will be used to interpret the core clauses. The assessment of compensation events in clause 63.5 should also be amplified.

The contract should also make clear the circumstances in which one of the members of the project team has to accept responsibility for a mistake and when a mistake should be corrected – such as in changes to the prices owing to the effect of a compensation event (clause 61.6).

Provided these and some other points are picked up, I believe that the NEC3 should be used in different legal systems with the same success as has been achieved in the UK.