N E C C ONTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE

NEC Contracts
for Contractors:
A Short Guide
Contents
First time working with NEC4? 03

What are the New Engineering Contracts (NEC)? 04

NEC4 - it’s time to learn a new language 05

Know your options 07

A strong emphasis on programme 08

Communication in NEC4 09

Get contract notices right 10

Causeway Commercial Management 11

Effortlessly manage NEC contracts 12

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 First time working
with NEC4?
Here’s what you need
to know
The New Engineering Contracts (NEC)
have had a significant impact on how the
construction industry works.

By providing clear, straightforward

language in contracts, and encouraging
a collaborative and non-adversarial
approach, they’ve played a big role in
improving contract standards and project
management in construction projects.

The latest iteration of the model – NEC4

– was published by the Institution of Civil
Engineers (ICE) in June 2017.

The ICE described NEC4 as an “evolution,

not a revolution”, so if you’ve previously
used NEC3, the latest version won’t
represent a huge learning curve. Still, there
are a number of significant changes in
NEC4, which it’s important to be aware of.

Here’s what you need to know about NEC4

if it’s your first time using these contracts.

https://www.trowers.com/insights/2017/october/nec4-contracts-evolution-not-revolution
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N E C C O NTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE

What are the New Engineering Contracts (NEC)?

NEC contracts can be described as a suite of construction and civil engineering
contracts that were first published in the UK in 1993.

Traditionally, construction Whether you have no previous • Tech: Newer construction

contracts were seen as somewhat experience with NEC contracts, tech, such as BIM, is explicitly
unclear, and this often led to or have worked on projects with covered in the NEC4 contracts.
litigation. The NEC contracts NEC3, it’s helpful to understand
were intended to make the some of the changes in the latest • New forms of contract: A
relationship between companies updates. couple of new contract types
commissioning projects and have been introduced.
contractors more collaborative, by NEC4: what are the big
making contracts clearer. changes? • Disputes: A new dispute
avoidance and negotiation
They’re generally viewed as a There are several areas where period of four weeks has been
successful innovation and have NEC4 contracts differ to earlier introduced.
been used in several countries iterations, including:
around the world on countless
projects. • Language: Gender neutral
language is used, and
NEC4 is the latest iteration of this several new terms have been
suite of contracts. It has been introduced. Certain wording
updated in various ways to reflect has changed for clarity too
modern construction practices (e.g. ‘employer’ is now ‘client’,
(including greater reliance on ‘partnering’ has become
technology) and to accommodate ‘collaboration’).
requests from users.

https://www.causeway.com/blog/how-an-ipt-ethos-supports-the-successful-delivery-of-nec-contracts
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N E C C O NTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE

NEC4 - it’s time to learn a new language

Though designed with simpler language than other contracts, and with the first
changes since the NEC3’s introduction in 2005, the NEC4 contains these terms that
you must get to grips with:

Compensation Events
These are the only events that let
you increase the prices or delay
the contractual completion date.
In other contracts, these would be
called variations and extensions of
time and loss and expense.

Contract Data
This is broken into two parts. If
done incorrectly, it’s very difficult to
manage the contract:

º Completed by the client as part

of the Invitation to Tender

º Completed by the contractor

as part of your tender

Project Manager (PM)

Employed by the Client, this
role is similar to the Architect/
Contract Administrator under other
contracts.
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 Short Schedule of Costs
Vital to the assessment of Compensation Events.
The short schedule of costs covers option A and
B and is devised to capture more cost than NEC3.
Several add-on percentages have been removed to
eliminate unnecessary complication.

Scope
Essential to understanding the scope of work and
describing the constraints in providing that work.
This was called Works Information under the NEC3
contracts.

Early Warning Register

Helps create awareness about project specific
risks. This was called the Risk Register under the
NEC3 contract.

Fee Percentages
There are several fee percentages that need to
be tendered in respect of assessing cost, and a
knowledge of their application is crucial when
formalising an NEC4 contract.

Activity Schedule
Under Option A, this is a series of lump sums with
payment only due if you complete the activity, such
as milestone payments.

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N E C C O NTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE

Know your options: 6 options in NEC4

The NEC4 contract has 6 options that reflect the balance of risk between the
contractor and the client.

On one end of the scale, you have the more ‘traditional’ lump sum contracts, which give the client maximum
certainty of price, whereas Option F is a cost reimbursable contract – which gives the client the greatest risk:

• Option A: Priced contract with activity schedule

• Option B: Priced contract with bill of quantities

• Option C: Target contract with activity schedule

• Option D: Target contract with bill of quantities

• Option E: Cost reimbursable contract

• Option F: Management contract

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N E C C ONTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE
A strong emphasis on programme
NEC4 puts a stronger emphasis on
programming compared to other
contract types. Under most JCT
contracts, the contractor provides
a programme. If they want to claim
a time extension, they usually use
that programme to show where
delays occurred.
Under NEC4, you must submit
a detailed plan to the Project
Manager (PM) inside the period of
reply that’s noted in the Contract
Data Part 1 – usually two weeks.
Failing to provide a programme in
that window means the PM can
deduct 25% from every payment
until submitted in the right form.
You need to show standard items
like:
• Key dates
• Method Statements for each
operation
• Order and timing of operations
You will also need to show items
you wouldn’t normally under other
contracts, like:
• Float (how long something can
be delayed without delaying
the project)
• Risk allowances
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It’s essential to note that the PM
could reject your programme,
under clause 31.3, for four reasons:
• The contractor’s plan shows it
to be impracticable
• It does not show the
information the contract
requires
• Does not represent the
contractor’s plan realistically
• It does not comply with the
Works Information (or Scope)
The PM must accept the
programme inside two weeks. If
they withhold acceptance for a
reason not stated in the contract, it
becomes a compensation event.
 Communication in NEC4
In NEC4 contracts, all communication must be
documented – nothing verbal is permitted.

This is intended to reduce misunderstandings,

which is very beneficial when you consider how
regularly undocumented change occurs on other
forms of contracts: verbal instructions, technical
queries, letters, site instructions, variation orders,
etc.

It’s pure chaos by the time you finish the project

and find out your liability.

The NEC4 does not support any of those methods.

It provides a slick and sensible approach to
handling changes to the client’s requirements,
reflecting good contract management practice.

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N E C C ONTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE

Get contract notices right

You need to get familiar with But there’s more to notice To avoid burying contract notices
Clause 61.3 to make sure you’re requirements than just time in wider-day communications,
compensated for additional constraints. You need to comply Clause 13.7 stipulates they must
time and costs. It says that the with other formalities to ensure be sent separately and standalone.
contractor must give notice of your notices are valid, which you Otherwise, they will not be valid –
compensation events within eight can find in Clause 13: which will be particularly costly,
weeks of becoming aware of the especially when it comes to
event, otherwise they lose the right • Take the right form: Every Compensation Events.
to claim. notice must be in a form
that can be “read, copied and Early warning notices
On the other hand, the contractor recorded” – meaning it needs
has an avenue of ‘deemed to be in writing. This includes NEC4 has clarified and, to an
acceptance’ if the PM does not electronic communications extent, expanded the requirements
reply to your notice. Clause 61.4 like email or web-based of early warning meetings.
states the PM has one week to collaboration tools.
reply unless another timeframe is In NEC3, it was exclusively the role
agreed. • Give the right address: To of the contractor to alert the PM,
be valid, make sure the right but now PMs can also trigger the
If there’s no reply inside the address (email included) is early warning system. The PM also
agreed window, you can notify stated in the Contract Data or has some obligations to organise
the PM again about the failure to communicated to the Client, meetings to address issues as and
reply with a decision. If they still and that every notice is sent when they arise.
don’t reply within two weeks, the there.
compensation event is deemed
accepted, along with a deemed • Send in the timeframe:
instruction for you to provide a Certain NEC4 clauses have
quotation. set timeframes, like the eight-
week period for compensation
Once this is done, the case is events. Other clauses without
treated as a compensation event. them will revert to the “period
Only an adjudicator can change for reply”, which is set by the
that deemed acceptance. Client in the Contract Data.

https://www.neccontract.com/support/faqs/is-silence-deemed-acceptance
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https://www.burges-salmon.com/news-and-insight/legal-updates/nec3-contract-notices-what-to-watch-out-for
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 Causeway
Commercial
Management

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N E C C ONTR ACTS FOR CO NT RACTORS: A SH ORT GUIDE

Effortlessly manage NEC contracts

If you are working on a project that’s underpinned by an NEC4 contract, you’ll
need to make significant efforts to manage how you monitor and forecast your
project costs to comply with the contract and get paid. Organisations using rigid
or manual systems like spreadsheets may struggle to structure their project data
so that it can be audited and processed during application for payment.

Causeway’s Commercial Management solution

removes manual data processes allowing
you to consolidate and surface real-time data
from multiple sources in a secure database
which reflects your contract specific structure.
Contractors are empowered to:

• Effortlessly produce NEC-compliant

applications for payment to ensure there are
no delays

• Forward forecast on project performance

and earned value management by
integrating with your delivery programme

• Store and manage data in a way that is safe,

secure and which meets NEC4 standards

• Interrogate your contract data in a single

secure database in the event of any contract
disputes

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 To learn more about how Causeway
Commercial Management can support your
business with managing NEC contracts, talk
to us today!

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