NEC4: Engineering and Construction Contract Option A: Priced Contract with Activity Schedule

Product Information

This option includes a target contract linked to an activity schedule. The target contract contains a price commonly referred to as a target cost. Mostly used upon appointment of a contractor to carry out; infrastructure, highways, buildings & process plants. Can be used regardless of the level of design responsibility. Works that require immediate attention and cannot be defined at the project outset may benefit from a fast contract agreement. NEC contracts can also be intricate and detailed, requiring a thorough understanding of their provisions. The complexity of these contracts may necessitate expert knowledge or legal advice to ensure proper interpretation and implementation. The contracts also demand large amounts of data that can that often see people becoming data managers rather than commercial managers as they grapple with multiple spreadsheets to identify the data needed. The latest iteration of the model – New Engineering Contract 4 (NEC4)– was published by the ICE in June 2017. The ICE described NEC4 as an “evolution, not a revolution”, so if you’ve previously used NEC3, the latest version won’t represent a huge learning curve. Still, there are several significant changes in NEC4, which it’s important to be aware of.

This year, the organisation will commemorate three decades of NEC's existence. The driving force behind the development of these contracts was Martin Barnes, a distinguished UK Project Management Consultant. Barnes was specifically commissioned by the newly formed legal affairs panel of the Institution of Civil Engineers (ICE) to draft "a radical new contract which would stimulate and not frustrate the application of good project management." This Guide is replete with tips and practical advice for both new and experienced NEC users. It is worth finding the time to read it through carefully. Core Clause 5 also makes some more radical changes around defined cost for options C, D, E and F (new clause 50.9), and introduces a new final account process (clause 53). In practice, this should result in a rolling process of review and verification of costs. While it does not necessarily mean that disputes will be avoided, parties will at least know where they stand on an ongoing basis. It should also prompt parties to agree the records that are acceptable for cost verification at an early stage.We've pulled together a short guide to help you learn what's new and what your options are, particularly within NEC4. Helpfully, 13.4 makes it clear that if the project manager (PM) rejects something in the contractor's programme, the PM must provide reasons "in sufficient detail to enable the contractor to correct the matter". Project Manager: Employed by the Client, this role is similar to the Architect/ Contract Administrator under other contracts. The previous 10.1 is now split in two. Mutual trust and cooperation is now at 10.2 while 10.1 simply states the obvious: that the parties must comply with the contract. The nature of the FC and DRSC mean that the contract preparation and management parts of the guidance are contained in the same user guide.

The application will contain a breakdown of the contractors’ cumulative “defined cost” plus fee minus any “disallowed cost”. This combined is known as the “Price for Work Done to Date” (PWDD). This option contains a priced lump sum contract. The lump sum contract is then linked to a contract programme with an activity schedule. Each activity on the schedule is then allocated a price. Core Clause 2, which sets out the contractor's main responsibilities, has not had many changes. However, there are some interesting changes at clause 26, which give the client more control over subcontracting.The supplier selection user guide helps with how to select a supplier. Where tendering has been chosen as the method of selection, guidance is provided on the tender process including sending out invitations to tender, tender evaluation and assessment. Guidance is also provided on finalising and awarding contracts. NEC is famed for its use of short, plain English, and the new contracts incorporate changes in terminology. They are now gender neutral with some considered changes in emphasis. For example, the 'employer' is now the 'client', and 'works information' is now the 'scope'. This creates consistency across the suite. By having multiple types of NEC contracts available, project stakeholders can select the most appropriate contract that aligns with their specific project scope, procurement strategy, and desired contractual arrangements. This flexibility ensures that projects of all sizes and complexities can benefit from the advantages that NEC contracts bring, including clarity, transparency, and a collaborative approach. Although this contract is often referred to as “Cost Plus,” contractors should not get complacent and think Option E means a blank chequebook for works. The terms within the contract should set out clearly what is and isn’t to be reimbursed to the contractor.