The NEC Contract: Why?

In 2003, our Principal, Richard Everitt, wrote his undergraduate dissertation on the NEC contract, which at the time represented a significant departure from traditional construction contracting approaches.

More recently, the NEC has begun to gain traction in Australia, particularly in target cost arrangements.

Over the coming weeks, we will share a series of articles based on Richard’s work, reflecting on the NEC and how it seeks to improve project outcomes.

At the time, the NEC (New Engineering Contract) stood out because it challenged the prevailing approach to contracting in the construction industry. Rather than reinforcing adversarial behaviours, it was drafted around principles intended to support collaboration and project success.

The question Richard explored in his dissertation was simple: what made the NEC different, and did it actually lead to better outcomes?

Fast-forward to today, and the relevance of that question has only increased.

The Australian Constructors Association, in its report “Disrupt or Die”, highlighted several structural issues within the industry:

These findings will be familiar to anyone working in the industry. Disputes remain common, incentives are often misaligned, and risk is frequently transferred rather than properly managed.

This is not a new problem. In the UK, similar concerns led to the publication of the Latham Report in 1994, “Constructing the Team”, which reviewed procurement and contractual arrangements across the construction industry. Its findings were clear: adversarial contracting models were a root cause of poor project outcomes.

Among its key recommendations were:

Importantly, Latham recognised that simply refining existing contracts would not resolve these issues. A more fundamental shift in approach was required.

The NEC was developed in response to this need, as a contract built around principles rather than incremental amendments to forms of contract that were, at the time, based on models some thirty years old.

At the centre of this is a simple but important idea: risk should be allocated to the party best able to manage it, and managed proactively throughout the life of the project.

The question remains: what did the NEC change, and why has it been more effective where other forms have struggled?

In the next article, we will explore the core principles of the NEC and how they differ from traditional contracting approaches.