BuiltIntelligence

NEC3 : It was the worst of contracts ... and the best of contracts ...

Dr Jon Broome re-visits an article published 12 years ago on the best & worst things of the NEC3 family. Not much has changed, but there is a new 'worst' thing.

A version of this article was originally published some 15 years ago when the NEC was 10 years old. I came across it when transferring files to a new computer and thought - after another twelve plus years - it would be interesting to re-visit it.

As someone who has been commentating on the NEC suite of contracts since its launch (then 10 years ago), I had been invited to identify the three best and worse aspects of the NEC.  As you will see, the positives clearly outweigh the negatives – and the latter can all be solved. 

Three best things about the NEC

  1.  Flexibility of the whole family

When the first edition of the New Engineering Contract was written (now the NEC3 Engineering and Construction Contract), it was written with the belief that

  • design separate from and followed by construction and let on bills of quantities was not necessarily the best procurement route and
  • the trend towards a wider range of procurement routes would increase.

Now in an era of project and strategic alliances, target cost contracts, outcome / performance based specifications, delivery partners, multi-disciplinary projects and so on, no other contract comes close to matching the level of flexibility and range of applications found within the NEC family of contracts or the ease with which a ‘fit for purpose’ contracting strategy can be assembled. Indeed, some argue that the use of alternative contracting strategies have been encouraged by the very existence of the NEC.

Updated comment : apart from inserting 'delivery partner', this is still true.

  1. Stimulus to good project management, which includes collaborative working

One of the reasons that I started researching the use of the NEC was because, in my three years working for a contractor, I saw how much time and effort was wasted by confrontation at a site level where we seemed to concentrate far more on ‘stitching up’ the ‘opposition’ than actually constructing the asset, letting alone pleasing the customer.

Part of good project management is co-operation as well as identifying problems early while you can do something about them; on-going monitoring, forecasting and agreement of both the programme and financial aspects; clear risk allocation and roles and responsibilities; rapid dispute resolution and so on. Many of these things can happen on the best-run projects regardless of what form of contract they are let on. What separates the NEC family of contracts from the pack is that not only are these contractual obligations, but by and large there are meaningful incentives to push organisations into doing them. Its use has and is pushing up the level of project management professionalism in the engineering and construction industries.

Updated comment : still true !

 3. Ease of Use

The obvious area in which the NEC is easier to use relates to its ‘clarity’ objective – that is its sensible structure, use of plain English, shorter sentence length, use of bullet points and so on. Consequently, it is much easier for someone to become familiar both with the document and its implementation, which has obvious benefits, such as fewer breaches of contract and disputes starting at site level and a greater percentage of those that do being resolved at this level. These benefits are achieved in combination with its stimulus to good project management objective.

 

Three worst things about the NEC

 1. Politics surrounding it

With the above proven advantages, I find it hard to understand how any rational person can back traditional contracts, unless they have a vested interest in preserving the use of out-of-date contracts which cause confrontation and do not meet the needs of industry nearly as well as the NEC family. What profession and bodies can I be talking about ?

I also regret how, due to internal politics, the Institution of Civil Engineers failed to back a winner early on by adequately promoting a world beater, thereby allowing other contract drafting bodies to adopt – albeit watered down – some of the better ideas, thus diminishing the NEC’s competitive advantage.

Updated comment : In the original article, I also talked about how I still did not think the ICE was properly backing it financially. This is not true now. On the other hand, I think that in order to promote it (for the good of the industry), and reap the financial rewards (for the good of the ICE's finances), they can be a bit over-protective not acknowledge valid criticisms. This hinders innovation and continuous improvement of the family.

  1. Schedule of cost component(s)

The idea of a schedule of cost components is great – a schedule which quite clearly lists out what costs the contractor is entitled to when either a compensation event occurs or, under the cost-based options C, D and E, when doing the work. Anything not listed is in the Fee and there are even a few round-up percentages to avoid excessive calculations of minutiae …. and they are the problem! Both what these percentages are applied to and what these percentages cover do not necessarily match how contractors incur costs, leading in the most cases to the contractor being out of pocket, but sometimes the employer instead. The schedule is not exactly easy to understand in places or work out what you apply a percentage to.

Updated comment : Fortunately, some of the major flaws have been cleared up in the third edition of the ECC, but not all. For instance, the percentage for Working Area overheads still causes problems for those who don’t understand it and gamesmanship for those who do. There are other issues I could go on about ! 

  1. It’s not used (as much as it should be).

When I say “not used”, I mean the contract is let under it and then the actual conditions are put in the drawer and not read; systems aren’t put in place to administer the contract as written and therefore the conditions of contract are not implemented. In addition, the original intent of the contract can be so obscured by excessive use of poorly conceived and written additional conditions of contract (option Z clauses). Not only do people then lose the benefits of good project management, there is also a much higher likelihood of ending up in dispute which, when neither party has followed the contract, becomes incredibly hard to untangle.

This highlights the need for on-going education on NEC3. Also, given that there are now 7+ cloud based ‘NEC3 in a box’ contract administration systems, which not only give you the pro-formas to use, but also ‘hard-wire’ in the processes of the contract and give reminders of when a response is due etc., there is really no excuse for not using the contract as written.

Updated comment : This section is completely new, but should  perhaps be placed as the first worst thing, as the combination of not using the contract and poorly conceived and written Z clauses are the biggest cause of failed NEC3 projects.

In the old article, this section talked about the lack of meaningful sanctions on the Project Manager to perform particularly when they did not respond to a communication for acceptance. This has been partly addressed in the third edition with respect to communications on the notification of compensation events and submission of quotations (although I do not see why the Project Manager has 2 further weeks to do what he or she should originally have done in 1 and 2  weeks). However, there is still a lack of a meaningful sanction on the Project Manager to respond to a programme submitted for acceptance. 

Conclusion

It goes without saying that these are my personal opinions and, particularly with what I consider to be the three worst things, I have expressed them somewhat emotively. However, in the big picture, the negatives pale into insignificance beside the three best things and, for giving us these, the instigators and developers of the NEC family should have our respect, admiration and gratitude.

Updated comment : what is interesting is that I have only changed one of my six best and worst.

About the Author

Dr Jon Broome has been involved in the NEC's development since 1993. He has written academic papers, numerous articles and two books on it, as well as co-authoring BuiltIntelligence's NEC3 eLearning Academy. He can be contacted on 07970 428 929 or at jonbroome@builtintelligence.com.

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