Using the NEC forms of contract for works and services

Why NEC?

NEC standard forms of contract are increasingly being used for central and local government contracts. This is instead of other standard forms, typically JCT (for works and maintenance contracts) or RIBA/RICS (for professional services) and bespoke contracts. This trend is encouraged by the Cabinet Office endorsement of the NEC contracts and their co-operational rather than confrontational approach to contracting.

The British Institute of Facilities Management also encourages the use of the NEC term service contracts. The recently revised Highways Maintenance Efficiency Programme contract for local government roads contracts uses the NEC, and even the Crown Commercial Service is starting to use them instead of bespoke forms for facilities management.

So for many in central and local government the question is becoming not “Should we consider the NEC contract form?” but rather “Have we any reason for not using it?”

Over the last few years, we have been involved in assisting clients in setting up a number of NEC contracts. This has been for central and local government clients in England, Wales and Scotland. Our work has involved helping draft the initial contract strategy, writing the amendments to suit the needs of these clients and, often, EU procurement, assisting in the tendering process and then providing training to client and contractor teams on the contracts. We also have an NEC specialist in our construction team who is one of the NEC authoring team and an accredited trainer for the publishers.

So what is the NEC contract?

Published by the Institution of Civil Engineers, the NEC is a suite of contract forms covering:

• projects (the works contracts such as the Engineering and Construction Contract – ECC);
• maintenance and other on-site services (the service contracts such as the Term Service Contract – TSC);
• professional services such as architectural, engineering and project management consultancy (the Professional Services Contract – PSC); and
• the supply of goods (the Supply Contract).

In other words, there is an integrated set of contract forms covering all stages of work, maintenance and supply and its supervision and management. There is also a short and long form for each contract – providing an appropriate level of detail depending on the degree of risk and complexity of the work or services being procured.

All of them are written with an emphasis on managing the work in a proactive and co-operational way. You may have met the opening words of each contract – “in a spirit of mutual trust and co-operation”. They try to set the culture for the contractual relationships.

This is the only standard form contract suite that covers the entire spectrum of project, services and supply procurement. They are all written in the same style, all use the same management approaches, and all have the same structure and clause numbering. Anyone used to working with one form can easily transfer to another form without having to revisit their whole understanding of the contract. It also means that projects run entirely under NEC contracts can benefit from “back to back” relationships and allocation of risk. NEC contracts also allow a variety of contract strategies from “lump sum” price based contracts to reimbursable cost based ones, without having to write bespoke payment provisions, as is necessary with for example PPC/TPC contracts.

So why isn't everyone using them?

They are still perceived as relatively new – though they have been around for over 20 years. They are very different in style from most other standard form contracts and require a more proactive approach to their management. They also require effort up front in the procurement process to get the documentation right; they reward good tender and contract documentation and clarity. However, they are unforgiving where documentation is poor or where they are not managed well.

It is, therefore, more important than with other standard form contracts that clients who are using them understand them and how they should be managed. There are some ‘contract management essentials’ which it is important to understand. These are part of the good contract management process the NEC seeks to adopt but can be ‘traps for the unwary’ if they are not understood and followed.

Where NEC contracts really help is defining a good methodology for tendering and setting up contracts. They lead you into making informed decisions on contract strategy to select the different risk allocations. The clarity of the structure means that if the contracts must be amended to suit your particular needs, it can be done in a clear and transparent way enabling all to see the implications and possible risk transfer. And they encourage and support good management procedures, which can be assisted by good training in advance.

If you haven’t used an NEC contract before, tread carefully. Be prepared, be resourced, and be well advised. Look for the advantages it can bring you, the flexibility in your contract strategies, the uniformity of contract forms across the whole of your procurement; and go for it.

Further information

For more information, please contact Ross Hayes or Gayle Monk.