News & Media
May 21, 2017

Research finds NEC reduces infrastructure disputes

Research finds NEC reduces infrastructure disputes While the benefits of NEC contracts are widely recognised, a study at Kingston University last year has provided greater insight into the contract suite’s impact on infrastructure projects. 

Data collected through in-depth interviews with 12 senior construction professionals with nearly 300 years’ combined experience on a wide range of infrastructure schemes – from railways to nuclear plants – found in particular that NEC reduced the number of formal disputes.

The majority of evidence related to the NEC3 Engineering and Construction Contract (ECC) Options A and C, the most widely used main options. However, some interviewees also had experience with the NEC3 Professional Services Contract (PSC) and NEC3 Term Service Contract (TSC). 

Five of the interviewees had most frequently worked with clients, four were mostly with consultants and three were mostly with contractors. The majority had more than the average of 25 years’ experience in the construction industry.

Good framework for resolving disputes

Focusing on the impact that the NEC suite has on dispute resolution, the evidence suggested there was a lower overall rate of formal disputes on projects procured using NEC contracts compared to other contract forms. Conversely, some interviewees suggested that the number of smaller disagreements and informal disputes may be higher due to the manner in which NEC draws out and identifies issues before they reach formal dispute.

Interviewees agreed that some level of dispute was inevitable on infrastructure contracts given the conditions under which they are completed and the risks involved. They believed however that NEC contracts, where properly operated and managed, provide a sound framework for managing disputes and resolving them before they reach the formal dispute stage.

Advantages of clarity and transparency

The language of NEC contract clauses was popular with both clients and contractors. They said the simple NEC language could be understood by a wide range of users and helped the management of contracts and consequently the projects they were used on. It made it more likely that the contracts were read and that those operating them could better understand their contractual obligations.

A further NEC advantage was the more transparent pricing by contractors, who could better define the risk elements that fall on their shoulders and make better allowance for them in pricing the works.

The clear mechanism for pricing compensation events was also felt to be useful. Particular provisions highlighted which helped resolve matters were the time bar clauses (ECC clause 61.3) and non re-assessment of events (ECC clause 65.2). It was felt that these processes and provisions helped to keep events and issues smaller and less complicated.

Benefits of comprehensive record keeping

If matters did reach formal dispute – with adjudication being the most-often-named mechanism where NEC procedures were followed – the level of records available to the parties was of greater volume and detail than other contract forms. With this higher level of record keeping, it was then easier to hand matters over to a third party, such as an adjudicator, who could make a more accurate decision based on the relevant materials available.

Interviewees also highlighted areas where NEC users need to take additional care to ensure they gain maximum benefit from the contracts, as set out in the following sections.

Operating contract processes on time 

The testimony of interviewees reinforced the fact that NEC processes need to be operated in a timely fashion for the benefits to be realised. For example, while ECC clause 61.3 (or similar) will prevent delayed claims from contractors, once events are accepted there is a habit of delaying final acceptance and assessment of events until later in the contract. Project manager’s assessments are particularly prone to this – there is no specified mechanism if the contractor wishes to challenge the assessment of a particular event, which can leave unresolved issues for later in the contract.

Furthermore, while users reported that the continuation of cashflow on ECC Options C–E defers disputes as the contractor is not left out of pocket, the parties need to be prepared to resolve any issues which may otherwise manifest themselves later in the contract.

Ensuring adequate staffing and training

All parties must be willing to commit to the costs of resourcing NEC contracts. While interviewees acknowledged that there may be a greater cost associated with staffing NEC contracts, it was pointed out that properly staffed contracts could negate the need for any costly retrospective analysis at contract completion and handover. Additionally, if this activity is required of the team running the contract, there is the additional pressure of endeavouring to run the contract at the same time as closing out historic events.

Interviewees also recommended that the staff engaged have adequate training on using NEC and understand the underlying aims of the contract processes. Evidence collected suggested some misunderstandings when using the contracts still pervades the industry. For example, the notification of an early warning under ECC clause 16 is widely (and wrongly) believed to be a precedent to a granting a compensation event.

Keeping amendments clear and compatible

No discussion of the NEC would be complete without mentioning the misuse of option Z amendments. Interviewees had the usual horror stories of such changes being made to the standard form so as to render the original clauses virtually meaningless. 

However, of greater significance were amendments which had innocent intentions but were worded so poorly that they hindered understanding of the obligations on the parties. Any amendments made must be in clear language and compatible with the original contract language so as not to confuse or conflict with existing provisions. This applies equally to tender documents, which should where possible adopt a consistent wording style compatible with the NEC wording.

As was envisaged in creating NEC as a universal, flexible suite of contract documents, there was agreement some amendments would always be necessary to reflect individual client’s cultural and governance requirements. They should not however undermine NEC principles.

Conclusions

Overall the research concluded that NEC contracts are well placed to help parties resolve any disputes which may arise before matters reach formal dispute resolution. Consideration of the matters discussed in this article will ensure that the parties maximise their chance of a successful resolution and a successful project. 

The study was undertaken in 2016 as the author’s dissertation during a part-time MSc course in quantity survey at Kingston University. The subject of the dissertation was the impact of the NEC contract suite on dispute resolution, and contributed to the author being awarded a distinction. 
 
POSTED BY Chris Green, Transport for London
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