Dennis Brand examines the uptake of the New Engineering Contract in the region and outlines what you need to know.
How does the New Engineering Contract (NEC) compare to FIDIC? Dennis Brand examines the uptake of NEC in the region and outlines what you need to know.
The FIDIC Conditions of Contract for Works of Civil Engineering Construction 4th Edition 1987 (FIDIC 4) continues to be widely used in the Middle East. However, the news last year that the Abu Dhabi government has decided to adopt FIDIC 1999, albeit a modified version, was heralded as an important progress milestone for the UAE's construction and engineering industries.
For the private sector, the use of FIDIC 1999 (the Rainbow Suite) is still sadly something of a rarity, but perhaps by the public sector taking the initiative it will encourage wider use. However, while the Rainbow Suite may not have caught the interest of many of those charged with recommending the form of conditions of contract to be used, there is a marked increase in the use of the New Engineering Contract (NEC).
The NEC is known mainly for its use in the UK, but it has also been used with some success elsewhere, in particular Australasia.
In the UAE, the choice of the NEC conditions of contract for some high-profile developments has not gone unnoticed. It is an indication that NEC is now being regarded by some as an acceptable alternative to FIDIC.
The NEC conditions of contract were devised under the initiative of the UK's Institution of Civil Engineers. First published in 1993, its name was changed to the NEC Engineering and Construction Contract, but it is still known as the NEC. The NEC came about mainly because:
- clients were dissatisfied with existing standard forms of contract, believing them to be too adversarial;
- inflexibility - the existing standard forms of contract generally could only be modified by the addition of particular conditions or an appendix to contract, which often made modification difficult;
- clients found that there were too many disputes, which were expensive and took too long to settle;
- clients felt that there were insufficient contract management provisions within the available standard contract forms.
The main tenet of the NEC philosophy is one of "mutual trust and co-operation". Given the amount of discussion currently in the UAE on the subjects of alliancing and partnering, which some might consider a step too far at present, as the NEC is a more traditional contracting form it may have more appeal.
The objects of the NEC include:
- flexibility - it is intended and generally considered to be suitable for the entire construction industry;
- adaptability - with or without full or partial design responsibilities and includes contract options for target, management and cost-reimbursable contracts;
- it provides a variety of approaches to risk allocation;
- simplicity - it is written in clear and ordinary language and terms such as "fair" or "reasonable", which have been the basis of so many disputes, have been omitted;
- flowcharts are included for those who feel the need to use them;
- a stimulus to good management;
- because of the simple language it can be translated easily and accurately into other languages.
Elements of NEC
The NEC includes other important elements that make it unique amongst standard form contracts. Core Clauses are included, namely: the contractor's main responsibilities; timings; testing and defects; payment; compensation events; title; risks and insurance; and termination. These form the basis of the contract, which can then be modified according to the needs of the project by the selection of the various payment options: priced contract with activity schedule; priced contract with bill of quantities; target contract with activity schedule; target contract with bill of quantities; costs reimbursable contract; or management contract.
To these six main payment options there are secondary options, any combination of which can be added. These include elements such as advanced payments, sectional completion, bonus for early completion and delay damages.
There is also a section entitled Contract Data in NEC, which provides a very detailed section or appendix for the parties to enter specific information such as dates, price, parties or periods.
The inclusion of a requirement for non-binding adjudication is a refreshing alternative to amicable settlement, which often fails due to the parties' entrenched views and inability or unwillingness to move from their respective positions. Adjudication, being non-binding, does not rule out arbitration or litigation before the courts should such adjudication fail.
As with the earlier editions, the NEC3 Engineering and Construction Contract published in July 2005 (NEC3) comprises the same nine Core Clauses and six Main Option Clauses; it also includes around 20 Secondary Option Clauses. In fact the NEC3 complete edition includes 22 contract documents that, due to their format and structure, allow a mix-and-match approach to contract preparation from the various options to achieve the most advantageous and beneficial contractual arrangement for a particular project.
Having said this, and notwithstanding the various guides and flowcharts available, using NEC does need thought and consideration in its preparation. However, with its reputation established internationally following its use in high profile projects such as the UK Heathrow Terminal 5 and the Channel Tunnel Rail Link, it is encouraging to see it being used in the UAE.
Dennis Brand is senior legal advisor with HBJ Gateley Wareing.
- National Engineering Contract in brief
The NEC Conditions of Contract are now regarded by some as an acceptable alternative to FIDIC Conditions of Contract for Works of Civil Engineering Construction 4th Edition 1987.
- The NEC was devised by the UK's Institution of Civil Engineers and first published in 1993.
- The NEC is generally suitable for the entire construction industry.
- It includes contract options for target, management and cost reimbursable contracts and provides a variety of approaches to risk allocation.
- Core Clauses cover the contractor's main responsibilities, payment, compensation events, risks and insurance, and termination.
- Project specific information such as dates and prices can be included.