By Prasath Sanjeewa

The New Engineering Contract (NEC) is a form of contract published by the Institution of Civil Engineers (ICE) amongst several forms of contract used in the construction industry, which is primarily design to use under common law situations. NEC was introduced in 1991 as a consultative edition, and it had its’ first edition in 1993, and second edition in 1995. The third edition, known as NEC3 was published in 2005. The NEC3, also known as Engineering and Construction Contract (ECC) is increasingly and successfully used in UK and in several other countries around the world.

The ECC has set up a benchmark in terms of the risk is sharing by entire project team, transparency and non-adversarial style in construction contractual arrangements. Also, it is visible that the ECC from of contract is becoming fast forming the contract basis for standard procurement routes in the majority of the United Kingdom’s construction sector (i.e. chosen by Olympic Delivery Authority of UK for use in its projects). NEC3 is a
different approach from the traditional approaches in contract drafting. It facilitates sound project management principles and practices as well as defining legal relationships.

With the origination of the ECC form of contract it is intended have contracts with,

  • Flexibility
    Simplicity
    Stimulus for good project management

One of the salient features of ECC is the short direct clauses. It consists of a ‘pick and mix’ structure which aids the flexibility in preparation of the contract documentation. Also, Nine sections containing core clauses gives the parties to select appropriate main option clauses (Options A-F) to establish a favourable contract documentation for a selected procurement system. The series of additional conditions of ECC form of contract known as Z clauses which allow the parties to include bespoke terms or amendments into the contract and to prepare to well suit contract for a particular project. This is a salient distinction from the other forms of contract used in the construction industry. The disadvantage of having unnecessary clauses which are not relevant and contradicting in a particular project are attempted to be eliminated in ECC form.

The ‘pick and mix’ structure helps parties to select contract clauses to akin with the drawings, specifications and other parts of the contract document. This will prevent the contradiction between the sections of the contract documentation allowing all the personnel to the construction to easy understand; consequently will help in successful post construction management, contract administration. Also, in case of disputes this will help in easy interpretation of the contract without much expertise.

ECC has designed to achieve a higher degree of clarity and simplicity compared to other existing forms of contract. This simplicity and clarity reduce the occurrence of disputes and increase speedy operation of contract administration. It has discipline specific terminologies avoided and does not contain technical terms. Also, ECC form uses plain English and legalistic jargons are avoided which has influenced to obtain the real intention straight forward without any presumptions. Short sentences are included making the contract simple to understand, and interpret also avoiding ambiguities. Cross references between clauses are avoided, allows ease interpretation.

Another characteristic is that the terms such as ‘extension of time’ and ‘variations’ are not present. Also, the word “shall” to denote an obligation is also not considered under ECC form. Disputes in construction projects are common and mostly inevitable in relation to the documentation of the contract and interpretation of them, in legal or technical perspectives. Therefore, avoidance of both technical and legal aspects in the ECC from of contract form will allow fewer chances to emerge disputes.

Another expectation of ECC from, good project management is achieved through focusing on early warning, communications, collaborative working approach and programming. Under ECC form of contract the program forms a significant contractual tool, it is the major time management tool under ECC form (Clause 31.3). The program must be monitored and updated regularly including the events giving rise to compensation events. ECC from comprises with a broad requirements in construction scheduling which is expected to promote a best programming practice. Also, the program acts as a centralized document for handling events which may give rise to additional cost and time.

Templated compensation events (i.e. 19 numbers) in clause 60.1 and flexibility include more compensation events provides the employer to limit the boundary of claims and the large numbers of claims which may submitted by the contractor during construction.

Strict compliance with the early warning mechanism is vital in terms of success in claims related with the compensation events. ECC contains an early warning system (clause 16.1) supporting effective project management practice. Either party can give the early warning even though there may not be a compensation event, still parties are required to proceed with the early warning mechanism. This will help to identify and mange potential risks and take precautionary methods in advance.

According to the ECC from of contract it requires all changes to time and cost arising out of compensation events needs to be ascertained simultaneously with the events and if possible before changes are instructed. The purpose of this is to allow the parties to manage risk successfully and give the employer greater choice and control over change management, together with greater time and cost certainty.

Also, the assessment of compensation events needs to be done within a specified time schedule, clause 61.4 provides that the project manager has to response to a notification within two weeks otherwise by default the event will be accepted as a compensation event. Such clauses will make sure the employer to complete the project on time.

Provisions of Clauses such as 25.1 – Sharing the Working Areas are useful for an effective project management practice. Availability of Works information to everybody in due care and regularly will not cause unnecessary time overruns.

Quality aspects of the construction under ECC form of contract mainly overlooked by the key players to the construction and processes. ECC precisely sets out the key duties and responsibilities is another merit towards increasing the understanding between the parties consequently applies to enhance the collaborative working environment in delivering a good project management practice. (i.e. the role of the project manager)

Clause 3.12 provides that the program should contain a statement of how the Contractor plans to do his work identifying the principle equipments and resource. This ensures the quality delivery of the constructed facility. Further, Clauses 40, 40.2, 40.3 and so on are best tools in assuring the quality. ECC form has four legal avenues to enforce compliance with the quality requirement under clause 24.2 – Removal of the Contractor’s Employees, clause 44 and Secondary clause X17 - Reduction of Contract price and low performance damages, clause 45.1 – Correction of Defects by Others, and termination clauses.

Also, an extensive consideration has given to the risk management aspects by incorporating risk sharing methodologies. ECC takes a direct approach in terms of risk management unlikely in other forms of contract. The combined use of core and optional clauses provides for a variety of approaches to risk allocation. Clear allocation of risk between the employer and the contractor removes the confusions in interpretations. This also, provides to the contractor that entitlement under compensation events will be based only on the employer’s risks.

The risk register is another distinction from other forms of contract which includes a register of risks which are required to be listed in the Contract Data and update the register while the works proceed by both the employer and the contractor. This not only helps the current project but also for future projects of the employer. Risk reduction meetings is the next approach in which the parties are to cooperate in planning, management and mitigation of those risks by seeking solutions that will bring advantage to all those affected.

Another great strength is that ECC adopts a partnering approach while also placing great prominence upon pro-active project management. The simple early warning system encourages the identification of compensation events and for the parties to work in cooperation in order to establish an early resolution. This highlights the requirement of parties to have a partnering approach that could affect the achievement of any other party’s objectives. Also, parties are required to work together in a spirit of mutual trust and co-operation.

The initial request for quotation for acceleration under ECC form, rather than instruction to the contractor for acceleration will give the employer the early thought about the cost implications to the project. This is another advantage under ECC form.

Adjudication is the method which ECC provides to use in terms of dispute resolution, which would be a better mode for parties to adopt.

Plain and simple English in ECC from will make it adaptable of using under any jurisdiction due to the clarity of understanding of the intention expected by the clauses and less requirement of courts intervention in interpretation. Also, ECC is free from direct reference to specific law therefore application of it throughout the world will be realistic (i.e clause 12.2 ........This contract is governed by the law of the contract......).

Inclusion of secondary clauses to the contract will make it more favourable to each party in terms of cost and time. As an example Option X6- this provides the opportunity to the employer to get the project early than expected and at the same time contractor is benefited from incentives. Option Z provides the parties to include additional conditions which allow creating contracts that best suit the parties’ purpose.

In conclusion, ECC is a distinct from of contract exists in the construction industry. The use of simple short direct core clauses (Option A-F) provides parties the basis for a range of construction contracts under the different procurement methods. Secondary option clauses allow an employer to select particular terms which suit a particular employer’s requirements or a particular project and develop his own from of contract. This ‘pick and mix’ method has provided parties with several advantages compared to other forms of contract.

Clarity and simplicity of ECC from of contract has influenced in avoidance of disputes, speedy operation of design and construction process, economical benefits, enhanced relationship between parties etc.

Also, ECC’s proactive approach in project management also has derived party’s attraction on it. Construction projects require careful planning and implementation despite of nature, size and complexity. ECC has considered those concepts, and attempt to keep the contractor in the simple, quicker process by the use of a simple early warning system, flexibility in change management etc as well as the certain partnering procedures. Secondary option X12 included in the ECC creates a contractual obligation between named partners to achieve stated client objective, including shared and interdependent incentives.

The joint working mechanisms provided in ECC form makes it more suitable for large, complex and fast track projects to complete within the time, cost and quality parameters.

ECC’s risk sharing approach (i.e.: risk reduction meetings, risk register) should be welcomed by most stakeholders in the construction sector comparing to other forms of contract.

ECC is a contract that is now being implemented by the construction industry within the United Kingdom and internationally. It implements a contract documentation philosophy which supports good, modern project management practice. Hence, the use of ECC across the construction sectors will make it a potential, more successful and efficient form of contract.

Bibliography

  1. House of Commons Business and Enterprise Committee, ‘Construction Matters’ (HC 127-1, 2008)
  2. H Lloyd, ‘Some Thoughts on NEC3’ NEC users’ group Newsletter (London, January 2009) <http://www.neccontract.com/documents/key%20reports/Humphrey%20Lloyd%20final.pdf> accessed 05/08/2010
  3. N Gould, ‘NEC3: construction contract of the future?’ (2008) Construction Law Journal 1
  4. NEC3 Engineering and Construction Contract, (3rd ed, The Institution of Civil Engineers, UK 2005)


About the Author:
Ch. QS Prasath Sanjeewa (Membership No. 0467)
B.Sc (QS) Hons, LLM (CLARB). MCIArb, MAIQS, A.I.Q.S.SL