Will you start spreading the word?

What do the construction of the Channel Tunnel Rail Link, Heathrow's Terminal 5 and the Eden Project have in common? Answer: the NEC.

Although the NEC has always had a band of loyal supporters, it was slow to catch on in an industry that does not embrace change eagerly. I say this about the legal industry as much as the construction industry. A contract written in plain simple English using short sentences and every day words was something that we lawyers were not ready for. On the occasions it was used, the NEC was often heavily amended with pages of legalistic drafting that destroyed the simplicity and spirit of the original form.

In more recent years, the NEC appears to be catching on, especially in the public sector. It is used by the NHS, Environment Agency, Highways Agency and many local authorities. The Office of Government Commerce has recommended the use of NEC3 by public sector construction procurers and it has also been endorsed by the National Audit Office. Sir Michael Latham, a longstanding advocate of the NEC, has recommended its use on building projects for the 2012 Olympics. Even some legal commentators, this one included, are starting to be persuaded of the benefits. The arrival of NEC3 last year has caused many in the industry to take a fresh look at the contract and the reaction is favourable.

The NEC is not just a legal contract but also a project management tool and this is where it scores most strongly over its rivals

The NEC is not just a legal contract but also a project management tool and this is where it scores most strongly over its rivals. It is not intended to be a legal work of art, lovingly crafted at the outset of the project and then quickly forgotten until a dispute arises and it is time to call in the lawyers again. Instead, the NEC aims to be a handbook providing a framework for the running of a project, helping problems to be addressed early and promoting a ‘no surprises' approach.

One of the tools for achieving this is an early warning notice given by the contractor or project manager as soon as either becomes aware of any matter that could increase the cost of the project, delay completion or impair the performance of the works. This approach has been extended by NEC3 which requires the establishment of a risk register at the outset of the project listing all foreseeable risks. When an early warning notice is issued, the risk register is amended. The parties then convene a risk reduction meeting to discuss how to avoid or reduce the registered risks. NEC also requires the contractor to submit a detailed programme with regular updates to monitor progress and to provide a tool for assessing the effect of compensation events.

I spent a decade using traditional forms of contracts and traditional ways of working. I think it’s a good educational process but absolutely hopeless for serving society

Robert Gerrard, secretary, NEC Users’ Group

Another innovation in NEC3 are key performance indicators for use where a full partnering arrangement is not appropriate. The contractor is rewarded for meeting targets set out in an incentive schedule. The contractor must submit proposals for improving performance to the project manager if the targets are forecast not to be met. NEC3 also allows for key dates to be agreed. If not met, an early warning notice is triggered, the risk register updated and the employer is entitled to compensation from the contractor for any loss suffered.

NEC3 promotes the early assessment of compensation and extensions of time due to the contractor rather than, as too often happens, leaving claims to be determined at the end of the project long after the events in question. There is a detailed procedure for the submission of quotations by the contractor and the assessment of claims by the project manager. If the contractor does not notify a compensation event within eight weeks of becoming aware of the event, he loses his right to extra time and money.

NEC3 has been updated to ensure compliance with the Construction Act both in relation to payment and adjudication. It also provides for rights to be granted to persons such as funders, tenants and purchasers under the Contracts (Rights of Third Parties) Act 1999. There is, unfortunately, no provision for collateral warranties, which are required in many projects, and step in rights, which are usually demanded by funders.