Areas of untapped potential in NEC4 contracts

08 January, 2021

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Areas of untapped potential in NEC4 contracts

The NEC4 suite of contracts is very widely used in the industry, including in the procurement of a multitude of major infrastructure projects. NEC4 was introduced in June 2017, replacing the then 12-year-old NEC3. Having spent the last eight years working with solely NEC contracts, Associate Director Nicola Gemmell discusses the untapped potential that lies within NEC4.

Multiparty Collaboration

Option X12 focus’ on promoting collaboration between parties working on the same project that are not party to the same construction contract. It allows both KPIs and incentives for collaboration to be embedded into the contract.

Nicola said: “During my years of working on NEC contracts, this is an option that I haven’t seen implemented – whether in its previous guise of ‘Partnering’ under NEC3 or its new name of ‘Multiparty Collaboration’ under NEC4.

“It is possible that this under-use is due to the use of framework agreements. When a project is procured via such an agreement, the client will have already spent a great deal of time setting that up, along with the relative KPIs. With clients often being focussed on the budget and programme, the benefit of setting additional KPIs may not be wholly understood.

“However, with option X12, you don’t have to identify KPIs in the contract upfront, making it a very powerful option. The option can be implemented but sitting dormant until an appropriate point to set KPIs once the project is underway. As well as this, it gives the capabilities to update objectives according to emergency programme changes – such as those driven on some projects throughout the COVID-19 pandemic.

“It’s important that we look to formalising the process of collaboration. It’s a practice that is talked about a great length across the industry, but we must consider that while everybody wants to collaborate – they still have their own priorities. The use of Option X12 can help to formalise the collaboration needed to deliver a project on time and on budget – and crucially make sure this is aligned to what elements of collaboration and delivery are most important to the client.”

Whole Life Costing

Option X21 relates to a topic of ever-increasing importance to the entire industry and allows the contract to propose changes to the scope that would bring down the overall cost of operating and maintaining an asset over its whole life.

Nicola said: “The topic of sustainability is of crucial importance to everyone, and we’ve seen many local authorities throughout the UK declare their own climate emergencies, as well as seeing many delivery partners signing up to climate change agreements and focussing on BREEAM ratings. But we need to remember that true sustainability is about the bigger picture – and we have to consider the whole life of a scheme, not just the build phase.

“At Pick Everard we have seen the change of attitudes towards sustainability measures play out in changing practices from local authorities in recent years. Measures to combat the current climate crisis are needed on all projects within the built environment if we are to stand any chance of reaching the carbon neutrality goal for the UK in 2050, but these measures – especially those relating to whole life cost – do come with higher costs and more budget pressures.

“We are now seeing local councils and authorities drawing on separate funding pots for such measures so that – to use the example of education facilities – the cost per pupil budget is not impacted by the inclusion of sustainability measures.

“Option X21 was new in the NEC4 suite of contracts, but again this is one that is still under-utilised. Through conversations with our clients we can assist on ensuring that this powerful option helps clients both in the delivery of schemes, but also the longer-term maintenance and operations too.”

Early Contractor Involvement

Under NEC4, Option X22 allows the client to appoint a contractor at an early stage to input into the design process to innovate and eliminate risk in order to drive better time and cost certainty. This option was further amended in October 2020 to provide even greater flexibility in the development of a project in Stage One and to provide a more structured process for the contractor’s submissions and the notice to process to Stage Two.

Nicola said: “Of course, we all know that having early contractor involvement in a project is a valuable tool. They bring in commercial and build expertise to the pre-construction phase, meaning they can advise and alleviate issues before the project is physically underway. This, of course, relates to collaboration as discussed above, and in theory leads to a smoother delivery phase.

“Traditionally, people have used a Professional Services Contract Agreement in order to bring a contractor in at the pre-construction phase, so the under-use of Option X22 may simply be force of habit throughout the industry.

“However, there may also be some discomfort around the use of the option given it covers off the move from Stage One to Stage Two. It may be that where work does not progress on to Stage Two creates a feeling of ‘breaking’ the contract, when it is simply a case of non-continuation. If we can move through this discomfort and embed early contractor involvement into the overarching contract with Option X22, it will make the whole process run much more smoothly for clients and lead into improved collaboration from the outset.”

Please contact associate director Nicola Gemmell for more information on our NEC consultancy services.

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