From Philosophy to Practice: How the NEC Delivers on its Objectives

In our previous article, we explored why the NEC suite of contracts was developed and the three core principles that underpin its design:

• clarity and simplicity,
• flexibility, and
• stimulus to good management.

These objectives were ambitious. The NEC sought to depart from the traditional forms of contract, it was designed to address many of the recurring problems that have historically affected construction projects, including disputes, poor communication, adversarial behaviour and ineffective project management.

In this article we look at how the NEC contract seeks to address those obstacles and deliver on its three core principles.

Unlike many traditional forms of contract, the NEC contract does not simply allocate rights and liabilities. It includes a number of mechanisms designed to encourage proactive behaviour, early intervention, and collaborative problem-solving.

The Accepted Programme

Perhaps the most significant management tool within the NEC is the Accepted Programme.

Under the NEC contract, the program is not merely an administrative document or a planning aid. It forms a central part of the contractual machinery and is used throughout the administration of the contract.

Importantly, the NEC requires that a programme be in place prior to the contract date and be maintained throughout the duration of the project.  If a programme is not produced or updated, then payments are allowed to be withheld until the programme is prepared in accordance with the contractual provisions.

Under the target cost options, the Activity Schedule links payment milestones to the completion of activities, something akin to a priced programme. 

Early Warnings

The Early Warning process is one of the most distinctive features of the NEC.  Here, the NEC acknowledges risk and events are inherent in construction, seeking to tackle this head-on.

Both the Client and the Contractor are required to notify matters that could increase cost, delay completion, or impair performance of the works.

The purpose is not to determine blame, but to identify and collaboratively solve and mitigate those risk events.  The NEC required the Project Manager and Contractor meet in an Early Warning meeting to develop a solution.

Early Warning meetings are a key feature of a project delivered under an NEC contract, were both parties are contractually obliged to try to resolve risk events.

Compensation Events

Change is inevitable on construction projects. The NEC acknowledges this reality through its Compensation Event regime.  The NEC provides a list of events that are classified as a Compensation Event, providing clarity to both parties.

Additionally, the NEC contract includes a structured process for identifying, notifying, assessing and implementing change, with consideration given to both time and cost impacts.

The inclusion of the Schedule of Cost Components provides further clarity as to what costs can be included in a Compensation Event. 

Strict timeframes are placed on the Project Manager to assess and respond to Compensation Event submissions, thereby avoiding protracted discussion and the likelihood of disputes arising.

Mutual Trust and Cooperation

One of the most widely discussed provisions of the NEC is the obligation for the parties to act in a spirit of mutual trust and cooperation.

The clause reflects recognition that successful projects are delivered not only through legal rights and obligations but also through the behaviours of the parties.

A Contract Designed as a Management System

Viewed collectively, the Accepted Programme, Early Warnings, Compensation Events and the obligation of mutual trust and cooperation form an integrated management system. 

The NEC suite of contracts includes comprehensive flow charts and guidance notes to support administration and provide clarity of the intention of the mechanisms.

Rather than acting solely as a document to be consulted when something goes wrong, the intention of the NEC contract was that it is the basis for proactive management of the project through the programme, risk management via Early Warnings, a clear change mechanism through Compensation Events and strict timeframes place don both parties to resolve matters.

In doing so, it seeks to deliver on the three principles discussed in our previous article: clarity and simplicity, flexibility and stimulus to good management.

In our next article, we will compare the NEC against more traditional forms of contract and examine how these differing philosophies influence project delivery and outcomes