NEC TOOLKIT

®NEC 2022
CONTENTS

INSTRUCTIONS FOR USE 3 CHOOSING THE RIGHT NEC CONTRACT 19

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WHAT IS NEC 4 NEC CONTRACT FORMS 20

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WHY NEC EXISTS 5 NEC CONTRACT STRUCTURE 22

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INDUSTRY ADOPTION AND 7 WHERE NEC IS USED 23

RECOGNITION .. ………………………………….

NEC BEST PRACTICE 8 NEC COMMUNITY 24

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WHY CHOOSE NEC 9 NEC SUPPORT 25

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®NEC 2022
INSTRUCTIONS FOR USE
The purpose of this NEC Toolkit is to help inform all users of the NEC, whether
first time or experienced users, when making executive decisions on the
procurement and contract strategy.

It can be used to help understand what influences the decision for any of the
following and more:

 whether to choose the NEC over other forms of contract

 which NEC contract to use
 the appropriate allocation of pricing risk – main Options
 the appropriate allocation of liability and other risks
 considering Secondary Options
 whether design and construct or construct only

Additional resources can be accessed by clicking the buttons

throughout this toolkit.

The NEC suite of contracts has differing terms for the organisation providing the
works/services, etc., as well as for the role of administering the contract, this toolkit refers to
them as ‘the contracted provider’ and ‘the Client’s contract manager’.

®NEC 2022
WHAT IS NEC
Play the Introduction
The NEC (New Engineering Contract) is an evolving family of
to NEC4 video
procurement contracts that were originally launched in the UK in 1993 and
developed as a modern-day alternative to traditional construction contracts.
The NEC is currently in its 4th edition (NEC4).

It aims to be a worldwide benchmark for best practice in the procurement

and delivery of work, services and supplies and it is successfully supporting
the delivery of thousands of projects worldwide.

It is a contract built around proven best practice in project management and Play the Introduction
it engenders a collaborative approach to management and delivery.
to NEC4 FMC video
Find out more about the NEC family of contracts by clicking on the video thumbnails

Evolution of NEC NEC Glossary of

Contracts Terms
®NEC 2022
WHY NEC EXISTS
NEC offers a sophisticated and
comprehensive solution built
on three main principles of,
clarity & simplicity, flexibility,
and to be a stimulus to good
management.
Enabling organisations that
are willing to work in
collaboration to realise major
benefits such as
demonstrating value for
money through utilising the
effective project management
procedures and best practice
in procurement.
Delivering better
project outcomes
®NEC 2022
Choice of pricing and delivery
models
Requirement to act in spirit of
mutual trust and co-operation
Options for sharing risk & reward
Early warning procedure
Process to deal with early warnings
Senior representatives of parties
deal with most disputes
Regular updates of delivery
programme and anticipated final
costs
Fair and sustainable
allocation of risk
Alignment of interests
Early identification of risk
to the project
Timely implementation of
change
One source of truth on
project status and costs
Increased confidence of
outcome
Choice of optional contract
clauses
Alignment of all sub-contracts
Options for multi-party
collaboration or alliance
Options for dispute avoidance
inspections
Process for resolution of
compensation events
Formal adjudication procedure
All parties agree each update of
the delivery programme
Procurement processes and project goals can differ significantly from one
another, meaning there may be many variables that can impact on delivery,
commercials outcomes and resources.

The NEC promotes and enhances collaborative working and if used in this manner
helps achieve greater cost certainty, delivery to agreed timescales and
appropriate quality standards.

The NEC is intended to be used and referred to throughout the project lifecycle, from preparing
the business case to operation and maintenance of an asset. It incorporates robust real-time
approach to change management that allows parties to deal with change quickly, effectively and
in a collaborative manner, helping to avoid or reduce the impact on the overall cost and
programme.

NEC can also help save on legal fees. NEC4 provides a set of standard ready to use contracts
which are designed to work best when they have not been amended – although they do of
course provide the option for appropriate amendments to be made to suit specific circumstances
and/or requirements, such as country specific laws.

How NEC can help NEC delivering better

NEC Risk Allocation
your business value
INDUSTRY ADOPTION AND RECOGNITION
The NEC was the first contract to introduce a collaborative
approach to risk and contract management, include an
adjudication process and written in plain language.

In 1994 Sir Michael Latham’s report, ‘Constructing the Team’,

highlighted and recommended the use of the NEC:

“The NEC is capable of being a common contract for the whole industry.”

“The New Engineering Contract contains virtually all of these

assumptions of best practice, and others, which are set out in the
Core Clauses, the main and secondary options.”

“Public and private sector clients should begin to use the NEC, and phase out "bespoke" The NEC has received
documents” Government Endorsement by the
Government Construction Board,
“Use of the NEC by private sector clients should be strongly promoted by client and industry
bodies.”
Cabinet Office UK and the
Development Bureau, HKSAR
Government, further instilling
This allowed NEC to be adapted and adopted across all industries often
confidence in its use on public
becoming the contract of choice for both small, low risk to large and
sector projects.
®NEC 2022 complex projects internationally.
NEC BEST PRACTICE

NEC4 contracts:
Provide clear Allow to forecast the
documentation and Promotes active Ensure an
adequate and fair real effect of any
outline of roles, management
compensation change on time and
responsibilities and cost
processes model

Instil a level of Support and Help minimise

Define timescales certainty of the encourage chances of formal
for all activities project outcomes collaborative disputes occurring
working

®NEC 2022
WHY CHOOSE NEC

When an organisation is looking to carry out

construction or any other project work, they need to
decide on the appropriate form of contract – often with the
guidance of professional advisors.

They and their advisors may have some experience of

certain forms of contract, and be wary about using NEC
either because they know little about it or, because of the
many misconceptions that exist about it.

The following high-level guidance on NEC contracts will

provide decision makers and key business stakeholders,
with critical information necessary to make an assessment as to
which form of contract is right for their business and it is hoped,
instil confidence in the philosophy behind the NEC contract.
The guidance shows how the NEC contracts deal with issues of concern at
various parts of an organisation – board oversight, finance, legal, procurement
and operational.

®NEC 2022
GUIDANCE - BOARD OF DIRECTORS
Confidence in the proposed
contract outcomes
NEC contracts have been
Governance process
used since 1993 with users
reporting positive
experience
Governmental approval of
the use of these contracts
has been given in UK, Hong
Kong and South Africa
Many clients who have
adopted NEC contracts use
them repeatedly for their
work
A range of digital contract
management systems exist
which support the contract
administration and provide
accessibility and visibility of
the contract processes
The Client appoints people
to manage the contract and
monitor performance -
controlling cost, time and
quality - on its behalf
The Client’s contract
manager has the authority
to instruct a change to the
Scope where necessary, e.g.
if the Client’s requirements
change
Except where the conditions
allow, the contract cannot
be changed without written
agreement of both Parties
Certainty of outcome
The contract restricts changes
to time and price to a set of
specific grounds and clearly
defined processes – there are
no provisions for global
claims of additional cost
and/or extension of time
There are strict change and
risk management procedures
with clear timescales for
action and sanctions for
failures to act
If there is an entitlement to
change the price or
programme, it is
implemented at the time of
the event, giving the Parties
knowledge of cost outcome
and projected completion of
work
GUIDANCE - BOARD OF DIRECTORS (continued)
Deliver social outcomes
Interfaces between the contracted
provider and any third parties to
the contract which may be needed
to achieve the project objectives,
can be specified by the Client and
identified in the contract
Key performance indicators can be
incorporated into the contract
which can be used to incentivise
social outcomes by rewarding for
achievement or improvements
Provision to include climate change
requirements and set targets with
financial incentives for achieving or
improving on them can be included
®NEC 2022
Protect reputational risk
Anti-corruption provisions are
included, with stated consequences
if any corruption is found to have
taken place
The Parties are prevented from
disclosing any information obtained
in connection with the work except
as necessary to their duties under
the contract
The contracted providers can only
publicise the work if the Client
agrees
The contracted providers use of
Client material is restricted to that
necessary for providing the work
GUIDANCE - FINANCE DIRECTOR
Financial controls
The contract makes available a
wide range of commercial,
pricing and risk options to suit
all circumstances, from lump
sum to cost reimbursable
The contract specifies a list of
events which can give rise to a
change in the cost and timing of
the work
Changes to the cost and timing
of the work are assessed at the
time of a specified event
through a process designed to
encourage the agreement of the
effects of the change, with the
aim of reducing the chance of
disputes
®NEC 2022
Reporting and integration
The contract requires the
contracted provider and the
Client’s contract manager to
prepare regular updates of the The Client’s contract manager
provides regular reports as
forecast outturn cost in
prescribed by the Client in the
consultation with each other on
cost reimbursable and target Scope of the contract between
The liabilities of the Parties and them
based contracts
the types of insurances required
to cover these liabilities are A value engineering clause has
The Client specifies its
stated in the contract been added to the unabridged
requirements and standards for
financial reporting by the contracts which shares the
A Project Bank Account option is benefits of any accepted
contracted provider within the
available for UK contracts, proposals
scope, this enables integration
allowing for faster payment
with the Client’s systems
whilst also providing security of Target contracts contain a
payment for the supply chain mechanism for sharing financial
gains as well as over spends
Open book accounting provides against the final amended
transparency and helps forecast target price
as well as authenticate cost
when the cost reimbursable and
target options are used
 GUIDANCE
GUIDANCE - LEGAL
- LEGAL COUNSEL
COUNSEL
Confidence in legal outcome
The NEC has been in use since 1993 by
repeat clients. Its adoption was
recommended by Sir Michael Latham
and it has been endorsed by
Governments
There have been only a limited number
of legal cases referred to the Courts with
no significant adverse findings
Clear dispute escalation and resolution
processes and options involving Senior
Representatives of the Parties,
adjudication or a dispute board can be
followed by either arbitration or a Court
process
Country specific Secondary Options are
available for inclusion with provisions
which incorporate legislative
requirements
®NEC 2022
Risk management
Risks carried by the Client are clearly
identified under core clause 6 as
compensation events. There is a clear
and strict process for determining the
effect on both time and cost should an
event occur
A mandatory early warning procedure
requires the early identification of all
risks to time, cost and quality, followed
by a review of the options for avoiding or
reducing the effects, recording the
actions which should be taken and by
whom; the contract manager facilitates
the process and takes the final decision
Client requirements for managing risks,
including health and safety and the
protection of data are stated in the Scope
Contract procedures oblige co-operation
and encourage the agreement of change,
aiming to reduce the chance of disputes 
Liabilities
The Parties liabilities, including those for
damage or injury and the corresponding
allocation of costs, are clearly set out in
core clause 8 of the contract
Liability for third party risks are allocated
in the contract under core clauses 2, 6, 8
and additionally through the inclusion of
secondary option Y(UK)3.
Contract includes options for requiring
the contractor to provide a performance
bond or ultimate holding company
guarantee
Option for undertakings to others
(warranties)
Client states any limits to the liability of
the contractor
Procedures for termination and
consequent liabilities stated in the
contract
Contract manager cannot relieve
Contractor of its responsibilities
GUIDANCE – PROCUREMENT/COMMERCIAL DIRECTOR
Procurement options
A wide range of contracts to suit all types of
work and contracting arrangements including
alliancing, management contracting, design
build and operate, as well as more traditional
forms available in long and short versions
Different pricing options provided to allow
the selection of preferred pricing methods
and risk allocation including, lump sum
contracts, measured contracts, target
contracts (sharing potential cost
savings/overrun), cost reimbursable contracts
The contract includes an option for
identifying Conditions and Key Dates which
enables the co-ordination of multiple
contractors working on the same project to
work collaboratively
®NEC 2022
Secondary Options provide great flexibility
to select appropriate provisions to meet
procurement requirements, allocate risk,
introduce sectional completion, incorporate
an information model (BIM) among other
needs
Option for early contractor involvement –
before design finalised - to work with the
Client in completing design, assessing risks
and incorporating buildability, etc.
Design responsibility is by default retained
by the Client but can be transferred in full
or in part to the contracted provider
GUIDANCE – PROCUREMENT/COMMERCIAL DIRECTOR (continued)
Contract controls
The Client’s contract manager is in
control of cost, time and quality
Change control is managed by the
Client’s contract manager, with an
option to seek alternative assessments
that provide an appropriate balance of
time, quality and cost which meet the
Parties needs
®NEC 2022
Change to cost and time determined at
the time of the event
A wide range of incentives can be
included in the contract, through the
inclusion of Secondary Options for KPIs,
sharing of benefits for cost savings,
whole life cost improvements, meeting
environmental targets, etc.
Progressive finalisation and
agreement of the audited cost in cost
reimbursable and target contracts
Assessment of the final payment is
conclusive evidence of the final
amount due unless either Party refers
it to the dispute process
Bonus for early completion and/or
delay damages can be included within
the contract to motivate timely
completion
No change can be made to the scope
of work without an instruction by the
contract manager
 GUIDANCE - OPERATIONS DIRECTOR
Change control
Contract management The contract lists the The early warning process
events which could give not only identifies
Active management of An early warning register The contracted provider is rise to a change in cost or potential risks to the
the contract by the is maintained to identify required to operate a completion of works and project but also what
Client’s contract manager and mitigate the risk to quality management services actions to take and by
allows the timely time, cost, quality and system which complies whom
agreement and disruption to the Clients with the Client’s Change in cost and/or
instruction of Tasks operational activities requirements completion established at The decision of the
the time of the event contract manager is final
A regularly updated The contract manager
programme/plan shows subject only to the
controls the acceptance Some of the contracts
future work and forecast dispute resolution
of subcontractors and key include acceleration
dates to meet contract process
people provisions.
requirements
The procedures
The change event process
allows continuous encourage collaboration
updating of forecast and the agreement of
outturn cost and time to change, aiming to reduce
complete work the chance of disputes

®NEC 2022
GUIDANCE - OPERATIONS DIRECTOR (continued)
Staffing requirements
The contract can be
managed by the Client using
internal staff or contracted
out to a specialist
organisation
The Client has a limited
contractual role compared to
that of the Client’s contract
manager. The Client’s
contract manager needs to
have a thorough
understanding of how the
contract is operated
®NEC 2022
The Client’s contract
manager is responsible for
the successful completion of
the contract and will need to
have the appropriate skills
Training in the use of the
contract including NEC
accreditations, is available
either in-house or in open
courses to ensure that
people have the appropriate
skills
DIFFERENCES BETWEEN THE FULL AND
SHORT CONTRACTS
When to Use | Risk Level | Management

Full Contract Short Contract

Complex Projects
No restriction on value
High risk transfer
Manage Early Warning Register
Sophisticated management tools
Complex programme /plan requiring acceptance
Short contracts are an abridged version from the
full contract and are used where sophisticated
management techniques are not required, the
work is straightforward and imposes only low risk
on both Parties.
Straightforward Work
No restriction on value
Low risk transfer
No Early Warning Register

Low administration burden

No Accepted Programme

®NEC 2022
 CHOOSING THE RIGHT NEC CONTRACT
PSC & PSS
HIGH

ECC & ECS The NEC suite of contracts caters for a

wide range of works and services. The
SC
ed
principal NEC4 contracts, short
g
rid FM & FMS & FMSC contracts and subcontracts can be
a b broadly grouped into
n
Complexity & Risk

TSC & TSS

U works services supply
ALC
as shown in the matrix. The choice of
DBO contract depends on the type of project
PSSC and its complexity and levels of risk.

ECSC & ECSS

ort
Sh
SSC
LOW

TSSC Choosing the right

contract
FC
Contracts
Other

DRSC

Business Case Design Delivery Operation

*to identify the acronyms, please hover over the relevant text and click the hyperlinks
NEC CONTRACT FORMS

Professional Service Engineering & Supply Contract Facilities Management Term Service Contract
Contract Construction Contract Contract
Used to for the Used to employ a
Used to employ a Used to employ a procurement of high Used by a Client to supplier for a period of
consultant to undertake contractor to undertake value goods and related appoint a Service time to manage and
any kind of professional any kind of construction service including design Provider for a period of provide a service
service work including design time to manage and
responsibility provide any type of
facilities management
®NEC 2022
services.
 Alliance Contract Design Build & Operate Framework Contract Dispute Resolution
Contract Service Contract
Used to employ a Used for the
contractor to undertake Used to for the appointment of one or Used for the
any kind of construction appointment of a more suppliers over a appointment of an
work including design contractor for design, set term to carry out adjudicator or dispute
responsibility construction or work or provide a avoidance board
modification and service or goods on an member to resolve
operation of assets ‘as instructed ’ basis disputes under NEC4
using NEC4 contracts. contracts
®NEC 2022
NEC CONTRACT STRUCTURE

Contracts are designed modular,

consisting of core clauses, main and
secondary contract options, dispute resolution and
jurisdiction-specific options, and additional contract
conditions.

NEC uses consistent language across all its contract

suite. Roles such as Project Manager and Supervisor
will vary with contracts. For example, TSC, PSC and
DBOC use Service Manager and have no Supervisor.
The obligation however remains constant.
WHERE NEC IS USED

 Construction  Hospitality  Pharmaceutical

 Infrastructure  MMC  Water View all the NEC Case
Studies here
 Energy  Oil & Gas  Waste

NEC can be used anywhere in the world. It is written in plain English, supporting ease of use and translation. Optional Y
Clauses allow specific provisions of local law to be incorporated into contracts. It is in use in the UK, Hong Kong, South
Africa, New Zealand, Australia, France, Germany, Ireland, the Netherlands, USA and the UAE. In 2019 NEC delivered the
venues and facilities for the Pan-American and Parapan Games in Peru.
NEC can also be used in any sector. The contract was first developed in the construction sector under the leadership of the
Institution of Civil Engineers, one of the world’s most respected professional bodies. Over the last three decades its use has
spread into sectors as diverse as oil & gas, infrastructure, facilities management, software, telecoms and pharmaceuticals.

®NEC 2022
NEC COMMUNITY

Online space to bring

together the NEC user Dedicated hubs for
community particular NEC topics

Connect, share expertise Access exclusive NEC

and best practice Users’ Group content
®NEC 2022
NEC SUPPORT
NEC IS WITH YOU THROUGHOUT YOUR FULL PROJECT
LIFECYCLE
Consultancy

NEC provides expert support to companies

Training
and individuals working on projects using
NEC offers a broad range of training products NEC forms of contract. We can:
to help your teams manage NEC effectively
and efficiently
Help you select the right contract for your
From a number of introductory courses project
allowing you to learn and understand each
contract and how it can be used Give specialist guidance on projects or to a
team on the use of NEC and its processes
To our practical courses that focus on Provide tender document review
successful preparing and managing of the
contract Advise on and review of the additional
conditions of the contract (Z clauses)
In addition, our advanced courses will allow
your team to excel in their contract roles and
NEC Competency demonstrate their knowledge and skills by
achieving our gold standard accreditation
Framework

®NEC 2022
GET IN TOUCH

Contact information

t +44 (0)20 7665 2446

e info@neccontract.com
w www.neccontract.com

Talk to one of our team to help

start your NEC journey!

®NEC 2022