JCT Contracts Versus NEC Contracts

SR Discipline

JCT Contracts (Joint Contract Tribunal) NEC Contracts (New Engineering Contract)

The PM’s overriding duty: to champion the NEC philosophy and promote the ‘spirit of mutual trust and
co-operation’.
The PM may be someone from within the Client’s organization but more often than not it will be a third
Contract Administration:
party engineering or project management firm.
- Contract Administrator (CA) (traditional); or
PM’s role includes: managing the Early Warning Register and the risk review process, operating the
- Employer’s Agent (EA) (design and build).
compensation event process, administering the contract including issuing instructions, certifying
Roles and CA (an independent 3rd party): oversees the project on a practical level, inspects the works and checks
payments and certifying completion.
1 Responsibilities
on progress, administers the payment process, any applications for extra time or money, and certifies
With this hands-on role, the PM must fully understand its duties under the NEC, navigating the various
practical completion and the making good of defects during the Rectification Period.
NEC time bar provisions and be experienced and able to proactively engage, and assist others to
In addition to the above, the Employer’s Agent (who may be a third party or someone from within the
proactively engage, in the risk management process.
Employer’s organization) has authority to exercise all of the Employer’s functions under the JCT Design
The Supervisor is part of the quality management of the works, responsible for checking that the works
& Build Contract.
comply with the Scope, by overseeing tests and inspections.
The Client must also play its part in the risk management process and actively engage in the
collaboration envisaged, if the project management tools are to be used to their best effect.

The NEC Contract Data sets out the Completion Date but also includes an option to specify Key Dates
in, for example, the ECC.
Key Dates work as milestones requiring the Contractor to achieve a stated key condition by the relevant
Key Date. Key Dates are adjusted by Compensation Events.
The Date for Completion is set out in the Contract Particulars. If the Contractor misses a Key Date, the Client may be entitled to claim the additional costs incurred as
Sectional completion (as an alternative) is also enabled. a result of the Key Date having been missed.
2 Time management Possession of the Site is given to the Contractor. The Employer may defer giving possession for up to The longer forms also have an Option for sectional completion
six weeks. Whilst the programme does not fall within the Scope, the longer form NEC contracts such as the ECC
The programme is not a contractual document. clearly set out the details that must be included in the programme. There are financial repercussions if
the Contractor fails to submit its initial programme.
The Contractor is required to submit regular programmes and the current Accepted Programme plays
an important role in assessing any extensions of time due to compensation events. Again, there are
sanctions for breach.

Taking the ECC, there are 20 compensation events which entitle the Contractor to claim extra time (with
option to specify more in the Contract Data).
In contrast to the JCT these events also entitle the Contractor to claim loss and expense incurred as a
result of any such delay.
The Contractor is entitled to claim additional time if the works are delayed as result of a Relevant Event.
Other important features of the NEC include the sanction if the Contractor has failed to give an early
The list of Relevant Events contains:
warning, with the Project Manager being entitled to assess the effects of the compensation event as if
•Variations/Changes (including as a result of a change in law after the Base Date);
the Contractor had given such warning.
•Instructions in relation to errors, inadequacies, discrepancies or divergences in the contract documents,
As a pre-condition to a claim for additional time, the Contractor must also give notice of a compensation
in relation to fossils and antiquities found on site, testing or open up the Works or the expenditure of
event within the specified time frame.
provisional sums;
The list of compensation events contains several of the matters covered by the JCT’s Relevant Events.
•Suspension by the Contractor due to a failure by the Employer to make payment;
Notable omissions from the list are:
3 Delay Management •An act or prevention by the Employer;
•Civil commotion/threat or terrorism or strike;
•Delays caused by a Statutory Undertaker’s works;
•The exercise of statutory power after the Base Date;
•Exceptionally adverse weather;
•Delayed permission or approval from a statutory body;
•Loss or damages by a Specified Peril (flood, fire, storm etc);
•Changes in the law will only be a compensation event where Optional Clause X2 is applicable.
•Civil commotion/the threat of terrorism or strike;
•Notable additions to the list of compensation events when comparing to the list of JCT
•The exercise of statutory power after the Base Date;
Relevant Events are:
•Delayed permission or approval from a statutory body;
•Unforeseen physical conditions;
•Force majeure.
•The Client takes over part of the works before practical completion
•The Client notifies the Contractor of a correction of an assumption which the PM stated about a
compensation event;
oThe Client notifies the Contractor that a quotation for a proposed instructions is not accepted.

Most of the JCT contracts are lump sum contracts; historically, the most common pricing option for the
UK.
However, given the current materials shortage, prime costs contracts (actual costs plus a fee) may be
on the rise. As many infrastructure contracts may not be best suited to a lump sum pricing model, the NEC contracts
The JCT Prime Cost Building Contract and Management Building Contract are prime cost contracts. are structured around alternative pricing options:
The JCT also provides options for remeasurement contracts under which the final contact price is •Option A (Priced Contract with Activity Schedule) i.e. lump sum.
determined once the works are completed by reference to an approximate bill of quantities included in •Option B (Price Contract with Bill of Quantities) i.e. remeasurement contract for items in the BoQ
the contract. though the Contractor takes the risk of carrying out the works at the agreed prices.
Adjustments for loss and expense: •Option C (Target Contract with Activity Schedule). The target cost comprises the total of the Prices in
4 Costs included Unlike the NEC contracts, the Contractor is not automatically entitled to claim loss and expense where it the activity schedule with pain/gain sharing mechanism for over/under spend.
is entitled to additional time. •Option D (Target Contract with Bill of Quantities), as above but the target costs is calculate by reference
Instead, the Contractor may only claim loss and expense for Relevant Matters. The list of Relevant to BoQ.
Matters is shorter than the Relevant Events and contains things such as: •Option E (Cost Reimbursable Contract) and Option F (Management Contract) are both prime cost
•Variations/Changes; contracts.
•Instructions in relation to in relation to discrepancies or divergences in the contract documents, fossils
and antiquities found on site;
•An act of prevention by the Employer;
•Delayed permission or approval from a statutory body;

The Employer’s detailed specification is contained in the Employer’s Requirements/Specification.

The level of design contained in the Employer’s Requirements/Specification and whether or not the
procurement method is traditional or design and build will determine how much control over the design
The Client’s detailed specification is contained in the Scope and the NEC defines a defect as any part of
and quality is maintained by the Employer.
the works which is not in accordance with the Scope.
The Contract Administrator or Employer’s Agent is responsible for inspecting the works throughout the
The Supervisor is responsible for inspecting the works throughout the project.
project and has powers to issue instructions for the removal of any works or materials that are not in
The Contractor must correct a defect whether or not the Supervisor has notified him of it.
accordance with Employer’s Requirements or to order the works are tested or opened up to ascertain
5 Quality compliance.
Defects can be notified at any time until the Defects Date i.e. the equivalent to the JCT’s Rectification
Period.
The Contractor is obliged to make good any defects, shrinkages or faults in the works due to a failure by
Retention can be deducted from interim payments in the same way as the JCT, with half paid after
it to comply with the contract; such defect being notified no later than 14 days after the end of
Completion and the remainder paid following the issue of the Defects Certificate (which is to be issued
Rectification Period.
at the end of the last defects correction period whether or not all notified defects have been corrected).
Retention can be deducted from interim payments, with half paid to the Contractor after practical
completion and the second half once the certificate / notice of completion of making good has been
issued (i.e. once all defects have been made good).

NEC contracts are flexible and can be easily adapted to suit difference methods of procurement and
different pricing structures and they are designed for use domestically in the UK and abroad.
A good example of how the NEC works well, particularly for public bodies procuring works on
frameworks, with the need for inbuilt flexibility, is the MoD’s £1.3 billion refit of its nuclear submarine
base on the Clyde estuary in Scotland. In that case, the MoD is reportedly using an NEC4 based
framework (awarding 10 year framework contracts in May 2018 to 3 contractors), with work packages to
JCT contracts are preferred by employers who want to retain a greater level of control over the project be awarded by direct award or competitive tender on a target cost basis (ECC Option C) but with
delivery and are generally favored by domestic commercial developers and their funders. flexibility to instead use the ECC Option A (Priced Contract with Activity Schedule) or ECC Option E
JCT remains the most popular form of contract for projects in the UK but with the NEC being widely (cost reimbursable) or, for smaller works, the shorter Engineering and Construction Short Contract.
6 When to use endorsed by a number of government bodies and organizations around the world, its use is increasingly Another key feature of the NEC contracts is the emphasis on collaboration and best practice project
more common. management. The Defense Infrastructure Organization responsible for the refit stated that a key
objective of the framework was to encourage a more collaborative approach to working in such a high
security, highly regulated and highly congested operational environment.
When the project team needs to work collaboratively, undertaking optioneering to find process solutions
which both achieve the Client’s requirements on performance and budgetary constraints, the NEC
contracts have the project management tools to drive the right behaviors.
This is a good example of how the NEC contracts lend themselves well to larger, more complex projects
particularly in the engineering/infrastructure sector.