April 01, 2019
NEC4: Good Fit for Pharmaceuticals
The pharmaceutical industry typically contracts for maintenance of existing process plant or for new ‘turnkey’ facilities ready for use. The NEC4 suite is becoming increasing popular in the sector as it has many advantages over the contracts traditionally used by international pharmaceutical manufacturers.
NEC4 contracts build on the successes of NEC3 to meet new market demands and fit with the expectations of future users. This has included updating NEC3 terminology − for example ‘Works Information’ has been changed in NEC4 to ‘Scope’, which is a far more familiar term in the pharmaceuticals sector.
Stimulating good management
Contractors with experience of using NEC4 are encouraging pharmaceutical clients to make use of the collaborative provisions in the contracts to stimulate good management and help build long-term relationships with supply chains.
In particular, the unique early warning process in clause 15 encourages the parties to manage risk and mitigate the effects as early as possible to avoid delays to the programme and increased cost.
The contractor’s requirement in clause 31 to issue and regularly update programmes also provides the client and project manager with comfort that the works can be managed effectively. This requirement is enforced by clause 50.5 which states that, ‘one quarter of the Price for Work Done to Date is retained in assessments of the amount due until the Contractor has submitted a first programme to the Project Manager’.
The main NEC4 Engineering and Construction Contract (ECC) allows a flexible approach for procuring new process plant and facilities, which six main pricing options suitable for any project dependent on risk profile.
Although the main ECC clauses for testing and inspection are short in comparison to other standard forms of contract, the contractor needs to comply with requirements stated in the scope. The client is therefore free to specify comprehensive testing and inspection requirements within the scope.
The various secondary option clauses are also suited to the pharmaceutical industry. Option X17 on low-performance damages places an obligation on the contractor to pay any damages specified in the contract in the event a relevant defect is included in the defects certificate. This enables the client to recover damages for any failure by the contractor.
Clients can also use secondary option X3 for multiple currencies on projects where significant plant and materials − such as control systems, mechanical and electrical equipment − are being imported from overseas. For completed projects, the NEC4 Term Service Contract (TSC) is ideal for their ongoing maintenance, with contractors and suppliers engaged for extended periods of time. The TSC helps to streamline processes, reduces risk and promotes best practice in procurement.
Offsite modular construction NEC4 is also particularly suited to pharmaceutical projects where process plant modules are fabricated offsite and plugged together on site. NEC4 Practice Note 4 (NEC, 2018) highlights how to use the complete suite of NEC4 contracts for offsite modular construction. The client can engage with module designer using an NEC4 Professional Service Contract (PSC), the module manufacturers using the NEC4 Supply Contract (SC) and the module installation contractor using ECC. They can also select the NEC4 Alliance Contract (ALC) or NEC4 Design Build Operate Contract (DBO) contract for larger, more complex modular projects and programmes.
In summary, pharmaceutical manufacturers are benefitting from using the suite of NEC4 contracts for procuring new plant or maintenance existing facilities. The standard terminology and flexible use of the whole suite are applicable to the varied requirements of any pharmaceutical project, helping to ensure they are delivered on time and on budget.
NEC (2018) Offsite modular construction, NEC4 Practice Note 4, September 2018, available at: https://www.neccontract.com/getattachment/c378614b-e70e-4e4b-957c-b399abd42bb8/Practice-Note-4_finalweb.pdf.aspx?lang=en-GB (accessed 24-01-19).
Written by Sean Kennelly, Palm Commercial Services and John Richardson, Booth Welsh
POSTED BY NEC Contracts