Australia’s new national infrastructure plan opens the door for NEC4

Infrastructure Australia, the Australian government’s independent infrastructure adviser, has given a strong endorsement to the NEC4 contract suite in its latest national infrastructure plan. Published in September 2021, the 2021 Australian Infrastructure Plan has section headed, ‘The UK is leading the way,’ followed by a summary of the benefits of the NEC4 suite of contracts (Infrastructure Australia, 2021). The plan states, ‘NEC is a family of standard contracts, so it promotes a range of options for use in a variety of commercial situations, project types, scenarios and locations’. It adds, ‘The NEC simplicity, collaborative focus and effectiveness at sharing risk and reward has seen it adopted internationally, supporting the United Kingdom’s access to international markets for exporting services and attracting investment.’

So what are some of the key challenges identified within the plan, and how might NEC4 assist the Australian government and Australia’s employers, principals, contractors and subcontractors in addressing them?

Collaboration

Infrastructure Australia has made collaboration a significant focus for the 2021 plan, aiming to include the views of the broader infrastructure industry, which undoubtedly filters into contracting strategy across the industry. In the 2021 plan, both industry and governments have jointly acknowledged the need to improve the culture of the infrastructure sector. Meanwhile the fundamental aim of NEC is to promote best practice, focusing on collaborative and relationship-based contracting principles. It would seem then that the two are striving to achieve a common goal in the contracting arena.

Historically, Australian standard form contracts have proven to be adversarial in nature and, these days, outdated. In direct contrast, the core of the NEC4 suite of contracts supports a collaborative contractual relationship as seen by its inclusion of the overarching general requirement of both contracting parties to act, ‘in a spirit of mutual trust and co-operation,’ and a requirement for either party to give early warnings to the other party.

NEC4 also includes an option (X12) for multiparty collaboration, which may be included as part of the contract. This focuses on promoting collaboration between parties working on the same project that are not party to the same construction contract.

Standard contracts

The 2021 plan aims to have 80% of construction projects over AU$250 million (£132 million) using a nationally standard contract suite within a timeframe of 10−15 years. It highlights the need for contract reform, describing the challenges presented by frequently using bespoke forms of contract that were actually labelled as standard.

The NEC4 suite includes a range of contract options which allows the contract to be easily adopted to a wide range of project types and sizes without the need for amendment. We see too often how changes to standard forms of contract shift risk profiles between the parties, creating disputes and an overall adversarial relationship.

In the UK, there is evidence that the NEC4 suite could provide a way to mitigate the use of bespoke forms of contract and could potentially address the challenges experienced in the Australian infrastructure arena in this regard.

The NEC4 suite covers a broad spectrum of core contracting forms including supply contracts, framework agreements, professional services arrangements, and design, build and operate contracts. In addition there are an impressive range of contract options which could leave the user spoilt for choice.

Dispute resolution

As robust as most contracts are, there is always the possibility that the parties could enter dispute at some point. NEC4 aims to not only provide a contractual mechanism to deal with disputes, but it also provides a mechanism to avoid disputes. In addition to option W1, where adjudication is the method for resolving disputes, NEC4 primarily aims to deal with disputes using the mechanism of a dispute avoidance board in option W3. The board, made up of representatives jointly chosen by both parties, provides a platform whereby either party may refer any dispute to the board to avoid dispute resolution and to manage issues before they develop into formal disputes. The intention is to encourage and support the parties in resolving any potential disputes before heading into adjudication.

NEC4 provides a dispute negotiation period of 4 weeks for escalation and negotiation of a dispute, which takes place prior to commencing any formal proceedings. This requires nominated senior representatives of each party to meet and to collaborate to reach a negotiated solution.

Risk management

One of the recommendations of the 2021 plan is to, ‘ensure a strategic view of risk is appropriately translated to project procurement by developing and applying mature risk allocation processes that comprehensively assess and validate risk and uncertainty and fairly apportion them to the parties best placed to manage them.’

NEC4 has introduced the early warning register, separate to the project risk register, used for broader project management purposes. Early warning provisions aim to create a collaboration effort between parties by getting the parties to act on early warnings that could otherwise potentially create risk around project costs, milestone achievement and completion, and quality.

Clause 15.2 of the main NEC4 Engineering and Construction Contract (ECC) (there are similar clauses in the other contracts) stipulates that the project manager must prepare and issue an early warning register which is accessed by all parties and contains risk items that have been identified by any of the contracting parties. In addition to a mandatory first early warning meeting, subsequent early warning meetings follow at intervals no longer than what is stated in the contract data until completion of the whole works. Clause 15.2 also allows for the subcontractor to attend early warning meetings if its attendance would assist in actions to be taken.

Combined with the project risk register, this level of involvement, especially at early stages of the contract, will also help government project teams to determine the most appropriate delivery method, based on industry’s capacity and the project type. Early identification of shortfalls in materials supply, insufficient manpower or lack of availability of plant and equipment adds to successful project delivery.

Payment issues

In Australia, a further major challenge that the infrastructure industry has faced is the inclusion of terms and conditions that comply with the various security-of-payment an adjudication legislation applicable across Australia. The 2021 plan aims to reach its target of 100% security-ofpayment legislation compliance within 10−15 years.

The NEC4 Y(AUS)1 security-of-payment clauses are optional contract clauses which may be included as part of the ECC, specifically designed for use in Australia. These clauses lay out the contract payment terms stipulated for compliance with the security-of-payment legislation across all Australian states and
territories, providing guidance on how the option is used. The reference to the applicable Y(AUS)1 clause is added in the contract data and there is no further need to modify the contract. By the addition of this preformed document, the opportunity to shift legal risk is eliminated.

Conclusion

NEC4 provides a robust suite of contracts that requires minimal amendment to suit the Australian procurement and contracting arenas. This range of contracts could provide muchneeded solutions to the challenges faced in the successful delivery of infrastructure projects and programmes in Australia. Significant clients such as Sydney Water, Main Roads Western Australia and the Square Kilometre Array Observatory (SKAO) have already championed the use of NEC4 in Australia. Hopefully the Australian construction industry continues to shine a light on this important suite of contracts and remains open to incorporating NEC4 into the delivery of the 2021 Australian Infrastructure Plan.

Reference

Infrastructure Australia (2021) Reforms to meet Australia’s future infrastructure needs: 2021 Australian Infrastructure Plan.
https://www.infrastructureaustralia.gov.au/publications/2021-australian-infrastructure-plan (accessed 24 January 2022).