NEC 3: Not a panacea for previous contract evils

The Olympic Delivery Authority is to use NEC 3 as the contract to procure all fixed asset and infrastructure projects in preparation for the Olympics in 2012.

In announcing this decision, ODA head of procurement, Ray Payne, said: “We will be using NEC 3 contracts where appropriate in the interests of furthering best practice and the Latham and Egan principles”.

This move has been welcomed by the industry and reflects the increasing popularity in the market of more collaborative working methods. It builds on the reception that NEC 3 received on its launch and the positive support the document attracts throughout the sector, particularly when measured against previous versions of the NEC contract.

NEC 3 certainly goes some way to addressing criticisms made of previous versions and to moving further towards the more collaborative model. That said, NEC 3 appears to retain the brevity and drafting style of previous versions of the NEC, which were criticised by some for lack of clarity. This represents a lost opportunity not just to make the form more user friendly but also to reduce the risk of the interpretation of this contract becoming the subject of protracted litigation.

Key features of NEC 3 which have been encountered so far and which are the subject of scrutiny in the market include:

Project management

Even more than previous NEC versions, NEC 3 requires robust and proactive project management from the outset. This process needs to be handled properly so that dialogue continues between all members of the project team. NEC 3 is not designed to be left in the desk drawer until things go wrong; it is a project management tool to be referred to at each stage by an experienced and properly resourced professional team.

Risk register

This requires a record of all decisions taken at risk reduction meetings to be maintained. It highlights NEC 3’s collaborative approach in dealing with problems as they arise, rather than later on when they can be more difficult and expensive to remedy.

Delays

NEC 3 increases the number of grounds for claiming a compensation event beyond those allowed under previous NEC versions.

The contractor may be granted a compensation event in particular circumstances. For example, if an event occurs which prevents the works being completed within the required time but, broadly speaking, the contractor can show that any experienced contractor would have judged that event as having such a small chance of occurring that it would not have been reasonable to allow for it.

Although this is technically aimed to assist with the effects of a “force majeure” event, the drafting of the clause is very wide. It does therefore seem to allow for other issues to be claimed as compensation events. This could, for example, include the insolvency of a subcontractor where, under other forms of contract (including previous NEC versions), they may not be permitted.

Given the time constraints of Olympic projects, it is inevitable that the wide-ranging circumstances which give rise to compensation events will be restricted heavily by specific amendments to NEC 3. The contractor’s obligations as regards acceleration will also be made more onerous.

Notice requirements

NEC 3 also introduces more stringent provisions for failure to comply with dates for notifying and responding to key issues arising during a project. This applies particularly to compensation events, which can result in extra expense for either party.

Under NEC 3 a claim made by a contractor for a compensation event is barred if notice is not given of a claim within eight weeks. Similarly, if a PM does not notify his decision on a contractor’s claim for a compensation event within certain timeframes, he is deemed to have accepted it on behalf of the employer.

These provisions will be of major concern to those involved in Olympic projects who will doubtless demand changes to the standard form to address these issues.

Phil Baker is a senior solicitor, Construction Group, Lawrence Graham