NEC X options: Additional rights
Andrew Wooldridge-Irving, Associate Director and Alex Tolson, Assistant Quantity Surveyor, GVE
Andrew Wooldridge-Irving and Alex Tolson with the second in a series of articles on NEC X options
REMINDER: Where any X options are planned to be included, they should be expressly indicated as such in contract data part one.
Furthermore, many X options also require supplementary information to be populated in either the contract data or the scope, or both, to facilitate effective operation of the procedure. Where this task is not undertaken, it may lead to complications with administering the option.
In our previous article, ‘NEC X options – Introduction’, we noted that the X options cover a wide variety of different topics, which makes it difficult to accurately categorise them.
For the purposes of this and subsequent articles, we have organised each X option according to what we consider to be the dominant theme, which for this article is ‘additional rights’.
This theme has been associated with the following X options:
X2 – Changes in the law – ECC, ECS, PSC, PSS, TSC, TSS, FMC, FMS, SC, ALC
X9 – Transfer of rights – ECC, ECS, PSC, PSS, FMC, FMS, DBOC, ALC
X11 – Termination by the client – ECC, ECS, PSC, PSS, TSC, TSS, FMC, FMS, SC
X19 – Termination by either party – TSC, TSS, FMC, FMS
X23 – Extending the service period – TSC, TSS, FMC, FMS, DBOC
X26 – Programme of work – ALC
X27 – Project Orders – FMC, FMS
X28 – Change of Control – FMC, FMS
To provide definition, a ‘right’ may be defined as the authority or entitlement to perform certain actions. Although there are many different types of rights, this article focuses on a contractual right which is expressly provided by an X option, each of which is examined in detail below.
Right to terminate – X11, X19 and X28
Termination may be defined as the act of bringing something to an end, although what actually comes to an end is determined by what the termination relates to. In this case, it is the requirement for the relevant Party to comply with their primary contract performance obligations.
Termination may be defined as the act of bringing something to an end, although what actually comes to an end is determined by what the termination relates to.
Option X11 provides for the ‘higher’ party (client/contractor/purchaser) to terminate without a reason, commonly referred to as ‘for convenience’. Although this right was common under NEC3, except the PSC form, under NEC4 this right is only found within the core clauses of the ‘short form’ contracts.
A point of note is that the contractor is required to notify itself under the PSS and TSS forms, which appears to be an anomaly. Furthermore, be aware that the inclusion of a double negative under the PSC and PSS forms could lead to unintended consequences.
Option X19 provides for either party to terminate without a reason, after a minimum period of service. This right applies to specific NEC service contracts that operate based on a fixed service period, rather than where time is essentially connected with the scope of work or service to be delivered. Due to the similarity with X11, it is expressly stated that X11 is not to be used with X19.
Option X28 provides for the ‘higher’ party (client/contractor) to terminate in relation to a change of control of the ‘lower’ party, which may commonly occur due to a merger or takeover. In this case, however, the right only arises where certain specified conditions are not met. These contractual rights do not detract from any related statutory obligations or common law requirements in relation to termination. The procedure on termination and amount due generally reflects the reason why termination has occurred, which varies between each X option as identified in table 1.
Right to amend the baseline requirements – X23, X26 and X27
Most NEC forms of contract provide the right to give an instruction changing the scope at either subclause 14.2 or 14.3. As certain contract forms operate on the basis of a ‘fixed’ service period, a change to the scope does not extend the corresponding time to undertake the work or service. Option X23 provides for an extension of the service period with pre-determined periods for extension. There are notice provisions and optional criteria, which both provide a condition precedent to an extension, although any period for extension can only be implemented by agreement between the parties.
As certain contract forms operate on the basis of a ‘fixed’ service period, a change to the scope does not extend the corresponding time to undertake the work or service.
Option X26 provides for adding a ‘scheme’ to the works. This option only applies to the NEC ALC form with the procedure including additional contract data and associated changes to the scope, the budget, completion date, alliance objectives and performance table.
Due to the way in which additional scope is added under option X26, this option would not be suitable for use in any other NEC contract, as the ALC form operates on a contrasting basis and arrangement.
Option X27 is the longest of all X options and provides for carrying out a project, which is additional work instructed by the service manager, similar to a task under the TSC and TSS forms. The corresponding procedure is fairly extensive as a project is linked to corresponding time obligations that do not apply in the same way under the facilities management forms of contract.
Consequently, there are provisions relating to starting and completion, a project programme and compensation events, to supplement the core conditions of contract in relation to a project.
Right to defined compensation – X2
Option X2 provides for a change in the law. The term ‘law’ is not defined although the intention is that NEC contracts may be used anywhere, so the definition would be determined according to the applicable jurisdiction. There are qualifying conditions within this procedure which are that the change must occur after the (sub) contract date and the law applies to the ‘stated’ location, which could either be the site, the affected property, the project or a country, depending upon the NEC form.
Where a change in the law meets the stipulated conditional requirements then it is treated as a compensation event. Although the NEC user guides state that the change must have an effect on defined cost to be a compensation event, this relates to the assessment not the principle as, in principle, every applicable change in the law could be a compensation event, although common sense is required to operate the procedure as intended. The DBOC form includes this procedure as a compensation event at subclause 60.1 (15) instead of incorporating option X2. A particular point to note is that ‘the law of the (sub)contract’ is stated in contract data, although the law relating to option X2 may be different depending upon the location, as described above.
Right to ownership or use of Intellectual Property – X9
Intellectual property (IP) is a reference to something that is created by the human mind. There are many types of IP, including trademarks, patents, copyright and designs, with ‘protective rights’ associated with these. As a general principle, IP ‘ownership’ is assigned to the people or business that created it. Option X9 relates to IP rights and the transfer of ownership of these rights to the client or contractor, as applicable. Although there are rights of use that are included throughout the core conditions of contract, for example at sub-clause 22.1 for the right to use and copy design under the ECC, ESC, SC and DBO forms, the ownership rights are not transferred unless option X9 provides for this.
In the next article in this series, we shall be reviewing X options which relate to a supplementary contract procedure.
Andrew Wooldridge-Irving, Associate Director and Alex Tolson, Assistant Quantity Surveyor, GVE