NEC4 Contract Amendments 2023 – What’s New?

After first publication in June 2017, and further amendments in both January 2019 and October 2020, the NEC4 suite of contracts has again been updated with recommendations from industry experts. While previous years saw clarifications and changes in respect of compensation event under the Engineering and Construction Contract (ECC), and charging rates in the Professional Services Short Contract (PSSC), not to mention the correction of more than a few typographical errors, some of this year's amendments include revisions to the following:

  • an Option to reduce Contractor's design liability from being liable for any failure to liability only for failing to act with reasonable skill and care
  • incorporation of Secondary Option X29 Climate Change for all Main contracts
  • amendment to the Schedule of Cost Components to adapt to the popularity of working from home, and other locations outside of the Working Areas
  • early contractor involvement (ECC) for further flexibility in the development of a project in Stage One and to provide greater clarity over the process to follow if the works do not proceed to Stage Two
  • other amendments, such as clarification in the FMSC in respect of damage to client property and clarity for the timetabling and procedure of adjudications Under Option W2 (contracts featuring Y(UK)2).

Contractor’s liability for design limited to reasonable skill and care (ECSC and ECSS)

The default position for a contractor's design responsibility has long been that where a failure has occurred, liability follows. January's amendments reflect the growing industry dissatisfaction and rejection of this principle, most prominently from contractors. Now an Option to lower this high bar is available under NEC4, whereby a contractor will only be liable for design failures where they have also failed to act with reasonable skill and care. No doubt going forward this will frequently factor in negotiations and will eventually feature prevalently in ECSC and ECSS contracts across the industry.

Incorporation of Secondary Option X29 Climate Change (All Main contracts)

While already published in July 2022 as a separate secondary Option, it is now incorporated into each relevant main contract. While this may be viewed as additional red-tape in what is already an extremely complex process, the driver behind the inclusion of this Option is an acknowledgement of the Construction industry as a traditionally heavy polluter and is ultimately born out of a need to assist parties with their environmental goals and obligations, in particular 'Net-Zero', and the raft of Environmental Social Governance (ESG) regulation certainly to come in the near future.

Amendment to the Schedule of Cost Components to adapt to the popularity of working from home, and other locations outside of the Working Areas (ALC, DBOC, ECC, ESC, FMC, FMS, TSC and TSS)

This update has been brought in to address the dramatic shift in working trends in the aftermath of the Pandemic. The popularity of working from home and hybrid working had not been accounted for in previous amendments and ultimately caused issues with costs associated with people working outside of designated Working Areas. To reflect this change, amendments to the Schedule of Cost Components have been published to allow an option for users to identify (in the contract data) people whose costs can be recovered as part of the Defined Cost, despite working remotely.

Adjudication Timetabling and Process (All contracts including the Y(UK)2 Option)

Under Option W2, it has been clarified that in disputes which have proceeded to adjudication, the adjudicator has sole discretion to determine the timetabling of the process. This helpfully aligns NEC4 with the Housing Grants, Construction and Regeneration Act (1996).

Secondary Option X22 – Early Contractor involvement (ECC)

The purpose of this amendment is twofold, serving to enhance cooperation between the Project Manager and Contractor at Stage One (such as agreeing a change to the Site Information) and for projects which do not reach Stage Two. Any compensation events arising are judged against the date of the notice to proceed to Stage Two, as opposed to the Contract Date. It is anticipated that this will allow information that is gathered in Stage One, and considered in the proposals for Stage Two, to be taken into account in assessing any compensation events.

Other Amendments

Other notable amendments include:

  • clarification on the ability of the Client to use the supplier's design (ALC, DBOC, ECC, ESC, FMC, FMS and SC).
  • clarification in respect of damage to a Client's property: It is now clear that the Service Provider is liable for loss and or damage to a client's property in instances where this has been caused by the Service Provider in the course of providing their services. This liability can nevertheless be limited by the Client in the Contract Data, if desired (FMSC, FMSS).
  • payment on termination: Where payment is due to the Supplier in instances of termination arising from a Purchaser's default (including for Purchaser's convenience), the SSC has now been aligned with the other NEC4 contracts (SSC).

Summary

These amendments reflect the responsiveness of NEC4 to constructive industry suggestions. Some will be of more use to you than others. Some will also carry new risks and obligations, so any inclusion of these amendments should be considered carefully.

For further information on NEC4 Contract amendments, please contact James Flanagan, Micaela Diver, or Brendan Fox.

Date published 28 February 2023.