NEC4 January 2023 contract amendments
Andrew Wooldridge-Irving, Associate Director, GVE
THE NEC4 suite of contracts were first published in June 2017 and have since been supplemented with the alliance contract, published in 2018, and the family of facilities management contracts, published in 2021.
Amendments were published for the NEC4 contracts in January 2019 and again in October 2020, with a further set of amendments recently published in January 2023.
A ‘simplified’ summary of the recent January 2023 changes are detailed in the below table, with each amendment examined in further detail.
Option X29 – Climate change
In March 2022, NEC released a consultative version of a new contract procedure, ‘Option X29 – Reducing the impact of the works on climate change’, which was written specifically for the ECC form of contract.
Following consultation and feedback, a formal published version was released on 26 July 2022 and titled ‘Option X29 – Climate change’, which was published for all the ‘long’ forms of NEC contract and subcontract, along with corresponding information for contract (or subcontract) data part one and two, except for the ALC form (contract data part one only) and was further supplemented with guidance notes.
Option X29 is now formally incorporated into the NEC contracts with the January 2023 amendments.
Cost component – People
The main intention of this change is to accommodate the inclusion of people cost where those people are not normally working within the ‘specified location’, which is defined as follows;
Working Areas ECC, ECS, ALC,
Service Areas TSC, TSS, FMC, FMS, DBOC.
This does not affect NEC contracts that use schedules of cost components that do not include the constraint of a ‘specified location’, which are the PSC, PSS and SC forms. Note also that NEC4 ECC option F does not use schedules of cost components.
This amendment comprises the following changes.
Schedule of Cost Components (SCC)
Under NEC3 an assessment of people cost under the SCC was determined by the time worked within the ‘specified location’, which applied to the ECC and ECS forms. An amendment under NEC4 to the wording at section 11 meant that people costs were now related to ‘... time worked on the contract’.
This revision was intended to permit directly employed people to provide the (subcontract) works in locations other than the ‘specified location’, although their normal place of working was still within the ‘specified location’. This change, however, did not apply to people who were not directly employed. The January 2023 amendments have introduced a further step change to this previous intention.
a) Directly employed people
A new cost category has been added for people whose normal place of working is not within the ‘specified location’ and who are working outside of the ‘specified location’. This is intended to reflect a change in working practices to accommodate people who are working from home, and other locations, as their normal place of work but who are working on the contract.
A new cost category has been added for people whose normal place of working is not within the ‘specified location’ and who are working outside of the ‘specified location’.To facilitate this new component, a supplementary entry is required in contract (subcontract) data part two. It is noted that the entry headings differ between the contract amendment sheets that state ‘category of person’ and ‘work’ and the ‘appended document’, referenced within the amendments, which provides for ‘name/job title’ and ‘role’.
Where the required information is populated then any incurred time for that resource is treated as a people cost, except where working on; manufacture and fabrication, design, providing a shared (subcontract) service or providing a service, which relate to other SCC cost components.
There is a further provision to allow the project manager (contractor) (service manager) (service provider) (alliance manager) to agree to additional people being assessed within this category, as if they were listed in contract (subcontract) data. There is no particular procedure associated with this action, however, so it is suggested to confirm any such agreement in a formal communication, setting out the required information.
b) Not directly employed people
The wording to SCC category 14 for people not directly employed has also been amended, such that previously the amount paid was related to the time worked while such people were within the ‘specified location’. The requirement for where they are working no longer applies and the assessment is now related to the time that they work, although still linked with the overarching principle of being incurred in order to provide the (subcontract) works (or service).
Short Schedule of Cost Components (SSCC)
The SSCC contains the same numbered components as the SCC but people cost (component one) is determined by People Rates stated in contract (subcontract) data part two. There are three categories of people listed, equivalent to sections one and 14 of the SCC. Previously an amount was calculated by multiplying the People Rate by the total time spent within the ‘specified location’. The January 2023 amendment relates to section 11 and the reference to ‘specified location’ is changed to time spent on work in the contract.
The difficulty with the above amendment, however, is that it essentially reflects the change to the SCC from NEC3 to NEC4, whereby certain categories of people continue to be paid according to the time worked while within the ‘specified location’. It is noted, however, that the SSCC applies to the ‘priced contracts’ with main option A (ECC, ECS, TSC, TSS, FMC, FMS) and B (ECC, ECS) and is used for the assessment in relation to compensation events only.
Cost component – Equipment
A change has been made in relation to the cost component for constructing, fabricating or modifying equipment, whereby the associated consequence that this was only incurred ‘as a result of a compensation event’ has been deleted. This amendment similarly applies to SCC component 26 and SSCC component 24, for all applicable NEC forms.
Using the ‘supplier’s’ design
The wording of the appropriate clause has been extended to provide for using and copying of ‘documents prepared for the design’ rather than just the design itself.
Note that there may be intellectual property rights associated with this requirement that necessitates licenses for such use to be obtained from third parties. Furthermore, where the ‘right’ extends to ‘ownership’ then option X9 should be used to affect this.
Adjudication
Section 108 (2) (f) of the Construction Act provides that construction contracts shall include written provision to enable an appointed adjudicator to ‘take the initiative’, with further detail on the adjudicator’s powers provided within part one of the ‘scheme for construction contracts’ (as amended) that includes:
- Deciding on the procedures to be followed (paragraph 13); and
- Giving directions as to the timetable to be followed (paragraph 13 (g)).
All applicable NEC contracts previously required further information to be provided within fourteen days (SC four weeks) of the referral. This requirement has now been deleted to ensure alignment with the ‘scheme’ intention. There are other amendments which effectively ‘tidy up’ the clauses.
All applicable NEC contracts previously required further information to be provided within fourteen days (SC four weeks) of the referral. This requirement has now been deleted to ensure alignment with the ‘scheme’ intention.
Note the following errors within the January 2023 amendment drafting:
ECSC The reference to clause 9.3 (5) should be 93.3 (5)
ECSS The reference to clause 9.3 (5) should be 93.3 (5)
PSC The word ‘replaced’ is missing from the sentence referring to clause W2.3 (8)
PSSC The reference to clause 9.3 (5) should be 93.3 (5)
PSS Missing bullet point from new clause W2.3 (5)
TSS Missing bullet point from new clause W2.3 (5)
FMSC The reference to clause 9.3 (5) should be 93.3 (5)
FMSS The reference to clause 9.3 (5) should be 93.3 (5)
SC The sentence referring to clause 94.3 (7) says ‘add’ but this should say ‘added’
SSC The reference to clause 9.3 (5) should be 93.3 (5)
Option X22 – Early contractor involvement (ECI)
On 27 November 2015, NEC published an additional ECI clause for use with the NEC3 ECC form of contract with main option C and E. NEC4 included this as secondary option X22 in the NEC ECC form, with the main difference being that ‘use of material’ (IPR) was not included as this requirement was addressed via a new ECC secondary option X9. When the NEC4 ALC contract was published in 2018, the ECI clause was also included as an X22 option.
Option X22 was revised as part of the October 2020 amendments to the NEC forms, with the main differences between the ECC 2017 and ECC 2020 version as follows:
- Access dates was a new defined term
- Proposals for stage two are prepared in consultation with the PM
- Information submitted at the end of stage one was defined
- A new reason for not accepting a submission was that it would cause unnecessary delay to access dates, key dates or the completion date
- The contractor could propose changes to the access dates, key dates and/or completion date.
Option X22 has been subject to further revision with the January 2023 amendments to the ECC as follows;
- The project manager and contractor may agree to change the site information during stage one
- A new clause provides for the amount due upon termination during stage one
- Compensation events under stage two are now judged against the date of the notice to proceed rather than the contract date, which will mean the ‘experienced contractor’ test is aligned with knowledge gained during stage one
- Compensation events that occurred before the issue of the notice to proceed to stage two are now treated as included in the change to the prices, key dates and completion date, which will provide a clear understanding of the commercial risk allocation
- There is a new requirement at the end of stage one for the project manager to notify where the works will not proceed to stage two.
Note that there is a textual drafting error within new clause X22.3 (7).
Design liability
This relates to the engineering ‘short forms’ of contract and introduces a new clause 83.4, that applies where contract (subcontract) data states that this is the case, with the new provision reducing the liability for any produced design to the level of ‘skill and care’, normally used by professionals designing similar work. This is a requirement which creates a specific performance obligation equivalent to the standard of care in negligence and is consistent with the liability under the ‘long forms’ where option X15 applies.
NEC have stated that the corresponding user guides will be updated to reflect the January 2023 amendments.The ‘skill and care’ obligation would apply when determining liability for any defects in the design. Where a defect is corrected that the contractor (subcontractor) is not liable for, then this is a compensation event. Without this clause, liability would extend to any defects in the design which could result in a ‘fitness for purpose’ obligation.
There is a further requirement to provide professional indemnity insurance for claims made due to the failure to use ‘skill and care’. Insurance cover is to be provided from the starting date until the date stated in contract (subcontract) data. Unlike the option X15 requirement, added with the January 2019 amendments, there is no procedure associated with acceptance of insurance cover, following the defects date and before the date stated in contract (subcontract) data.
The new clause essentially combines the relevant requirements within the professional services forms of contract, although under the engineering forms these are stated in a single clause, rather than each discrete matter being added to the relevant place in the contract, that is; liabilities, insurance and compensation events.
Limit of liability
- For any one event the limitation of liability provisions in the ‘short forms’ previously related to:
- Loss of or damage to property
Indirect or consequential loss. The PSSC form was different, however, providing for a total liability provision, limited to the amount stated. This limitation on the supplier’s total liability that arises under or in connection with the contract has been extended to include all the ‘short form’ contracts, which is a position that aligns with option X18 for the ‘long forms’, although there are no express excluded matters.
To effect this change clause 82.4 has been deleted from the ECSC, ECSS, TSSC, FMSC and FMSS forms with clauses 84.2 and 84.3 deleted from the SSC form. A new, or amended for the SSC, clause 84.1 combines the new limitation of liability provision along with those previously included within the deleted clauses.
The total liability amount is stated in contract (subcontract) data, which essentially makes this an ‘optional’ procedure as the amount could be stated as ‘unlimited’.
Damage to property
This amendment applies to the ‘short form’ versions of the facilities management contracts and confirms that the service provider (subcontractor) is liable for loss of or damage to the client’s (service provider’s) property that arises from providing the (subcontract) service. For any one event, the liability is limited to that stated in contract (subcontract) data.
Certifying delivery
There is generally an express requirement for completion to be certified within one week of the date, although this requirement does not feature in the supply contracts, where completion is termed delivery.
For consistency, the obligation to certify delivery is added to the SC form as a new clause 30.3. This new requirement, however, is not applied to the SSC form, for some reason.
Final assessment
This amendment is made to correct an error with the ECC option A only, to align with the timescales in the other ECC main options.
Additional compensation event
Under the PSC and PSS forms there is an express provision at clause 20.3 that liability for a defect only arises where the service has not been carried out using ‘skill and care’. A corresponding compensation event at 60.1 (13) provides for the correction of a defect where there is no contractual liability.
The express provision relating to skill and care’ also applies to the PSSC form, although there is no corresponding compensation event, which this amendment adds at clause 60.1 (9).
Termination payment
An additional ‘payment on termination’ clause has been added to the SSC contract to provide consistency with the other ‘short form’ contracts, in relation to termination for either a purchaser default or convenience.
Summary
Be aware that information is required to be populated in contract (subcontract) data, both part one and two, to facilitate effective operation of the procedure for particular amendments.
Contract (subcontract) data part one should also clearly state what published amendments apply to the contract, which would depend upon which published version is used and what amendments are already included in the body of the contract.
NEC have stated that the corresponding user guides will be updated to reflect the January 2023 amendments.
As highlighted, be aware of numerous issues noted with the amendment drafting, to ensure that contracts are clear and unambiguous.
Andrew Wooldridge-Irving, Associate Director, GVE
awooldridge–irving@gvecs.co.uk