NEC4 Dictionary

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NEC4 Dictionary

Accepted Programme
The Accepted Programme (in the ECC) is identified within the Contract Data or during the project it will be superseded by a later programme – there is a process for submission and this must be accepted by the project manager. The programme is to be practicable and realistic, showing when the contractor intends to carry out each part of the works identifying the resource it intends to use – this tool is invaluable in successfully managing a contract.

Compensation Events
NEC4 contracts are underpinned by a philosophy that the contractor (in the ECC) should not lose out, nor benefit from a windfall, as a result of an event which occurs and is at the client’s risk. Compensation events entitle a contractor to be compensated for any impact the event has on the prices, completion or key dates in the contract.

The cost impact of a compensation event is based upon the effect the event has on the cost of work already done and the forecast cost of work not yet done at the dividing date, which is often when the project manager instructed the change to the scope. 

This is when all work that the scope (in the ECC) states is to be completion by the Completion Date, including correcting any notified Defects.

NEC4 contracts are a family of standard contracts, each of which stimulates good management, are flexible and are clear and simple.

NEC4 contracts can be used during the entire project life-cycle; from planning, defining legal relationships and procurement of works, all the way through to project completion, FM or asset maintenance, and beyond. The intended outcome of NEC4 contracts is that time and money performances are improved while increasing standards by encouraging collaborative working in order to achieve shared project objectives. This philosophy promotes a less adversarial approach, decreasing the chance and impact of costly disputes.

Contract Data
This information needs to be completed as part of the necessary contract documents; in the ECC this contains details such as starting date/Completion Date/client details/defects date and the like. It is in two parts; part one (provided by the client) and part two (provided by the contractor).

Core Clauses
Most NEC4 contracts have nine core clauses which follow the list below from the ECC:

  1. General terms
  2. The Contractor's main responsibilities
  3. Time
  4. Quality management
  5. Payment
  6. Compensation events
  7. Title
  8. Liability and insurance
  9. Termination

The NEC4 Design Build and Operate Contract (DBO) allows Clients to procure a more integrated whole-life delivery solution. It reflects the increasing demand for contracts extending into the operational phase.

The benefit of the NEC4 DBO contract is that it combines the responsibilities for design, construction, operation and/or maintenance, which can be procured from a single supplier. The DBO contract can therefore include a variety of services during construction and these works are completed.

In the ECC, this is a part of the works which is not as stated in the scope or not in accordance with applicable law or the accepted design. There is a reciprocal obligation on both the supervisor and contractor to notify each other as soon as they are aware of a defect. At an agreed date, the project supervisor will list any uncorrected defects or certify that there are no defects (defects certificate).

Defects Certificate
In the ECC, the supervisor issues this at or just after the defects date. The certificate is a statement that there are uncorrected defects or that there are no defects, this starts the closing down of the contract.

Defined Cost
A defined term used in the ECC and other NEC4 contracts to give the parties a definition of Contractor’s cost for different use in different main options. They only include the amounts calculated using rates and percentages in the contract data and other amounts at open market/ tendered /discounted rates.

Delay Damages
This is a secondary option within the contract which can be applied if completion by the contractor (in the ECC) is later than the completion date. 

To support constructive relationships, for example in collaborative based arrangements, these are often set at or close to zero.

Disallowed Cost
These are an element of defined cost when using ECC options D to F. The applicability of such cost is made by the project manager. They are costs which the contractor has incurred but the contractor states are to be disallowed – for example, those costs which the contractor cannot justify via accounts and records.

Early Warning
The contractor and project manager should notify each other, as soon as practicable, of any matter which could affect the cost, completion, progress or quality of the works (in the ECC).

Find out more about early warnings.

The NEC4 Engineering and Construction Contract: the most frequently used contract from the NEC family which has been used on both high profile and every day projects such as infrastructure, buildings, highways and process plants.

This contract should be used for the appointment of a contractor for engineering and construction work, including any level of design responsibility.

The NEC4 Engineering and Construction Short Contract: this is an alternative to the ECC designed for use with contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the client and the contractor.

The NEC4 Engineering and Construction Short Subcontract: this can be used as a subcontract to both the ECC and the ECSC. It should be used with contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the contractor and the subcontractor.

Main Options
These are the pricing mechanisms that the main NEC4 contracts offer to choose from at tender stage. These options include lumps sum, target cost or cost reimbursable contracts.

The NEC4 Framework Contract: intended for use in the appointment of supplier(s) to carry out work or provide design or advisory services on an 'as instructed' basis over a set term.

NEC4/NEC4 contracts
NEC4 is a family of contracts that facilitates the implementation of sound project management principles and practices as well as defining legal relationships.

It is suitable for procuring a diverse range of works, services and supply, spanning major framework projects through to minor works and purchasing of supplies and goods. The implementation of NEC4 contracts has resulted in major benefits for projects both nationally and internationally in terms of time, cost savings and improved quality.

Option A
Option A: priced contract with activity schedule (used with ECC, ECS, TSC & PSC)

Option B
Option B: priced contract with bill of quantities (used with ECC & ECS)

Option C
Option C: target contract with activity schedule (used with ECC, ECS, TSC & PSC)

Option D
Option D: target contract with bill of quantities (used with ECC, ECS)

Option E
Option E: cost-reimbursable contract (used with ECC, ECS, TSC & PSC)

Option F
Option F: management contract (used with ECC)

Various NEC4 contracts deal with the provision of services. This includes purchases of professional services such as engineering, architectural, project management and consultancy works. It also covers composite services such as asset management/maintenance, also facilities management (FM) covering things like cleaning, catering, decorating, security, maintenance and data processing.

A defined term in the ECC, this includes the specification and description of works the contractor is to provide; it also might include a series of constraints to which the contractor must adhere to. It will be included either in a place specified by the contract data or later amended by a project manager’s instruction.

The NEC4 Supply Contract: this includes supply of high-value goods and associated services such as transformers, generators, rolling stock, cranes, gantries and complex plant. It also includes lower-risk items such as building materials and products, stationery, personal protective equipment and parts.

The NEC4 Supply Short Contract: intended for local and international procurement of goods under a single order or on a batch order basis with contracts which do not require sophisticated management techniques and impose only low risks on both the purchaser and supplier.

Target Contract
This is a type of pricing mechanism that allows the client and the contractor (in the ECC) an approach for sharing risk and opportunity. The client retains the cost and time risk linked to contractual changes, the financial effects of cost overruns can be shared. Target contracts should encourage delivery of a project on time and to budget, allowing a greater emphasis on Contractor’s cost than other arrangements.

Time Risk Allowance
This allowance is made by the contractor (in the ECC) when preparing its programme. These are owned by the contractor and provided to demonstrate that the contractor has made due allowance for risks which are the contractor's under the contract.

They must be realistic - unrealistic allowances could prevent the project manager from accepting the programme.

The NEC4 Term Service Contract: intended to be used for the appointment of a supplier for a period of time to manage and provide a service.

The NEC4 Term Service Short Contract: intended for appointment of a supplier for a period of time to manage and provide a service as alternative to the TSC for contracts which do not require sophisticated management techniques, comprise straightforward work and impose only low risks on both the client and the contractor.

Working Areas
A defined term in ECC to describe those areas which are necessary for, and only used to deliver, the required works.

Various NEC4 contracts deal with the provision of works. This encompasses contracts for the construction, refurbishment and decommissioning of buildings, structures, process plants and infrastructure – including everything from houses, schools, hospitals and leisure facilities to infrastructure for water, energy, transport, industry and waste.

Z Clause
This is a secondary option available in a number of NEC4 contracts. These allow for additional conditions of contract to that in the printed form – this could comprise of additions, deletions or omissions. Careful consideration should be given to the need for a Z clause. Care should also be taken to ensure that the clause retains the clarity, style and terminology of the rest of the NEC4 contract as well as that it does not cause conflict with other clauses.

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