Mandating the use of NEC subcontracts

Mandating the use of NEC subcontracts

"Occasionally in these editorials I have expressed surprise that there is a general lack of insistence by clients on the use of NEC subcontracts. I do not understand how the collaborative and proactive management mechanisms in NEC can operate effectively unless they also apply to a supply chain that delivers – in value terms – over 80% of the works.

Unless the supply chain can contribute to project risk registers, provide early warnings and attend risk reduction meetings, any attempt to manage risks as efficiently and effectively as possible will simply start and end at tier 1 contractor level.

While some tier 1 contractors may be adept at feeding through to their clients risk-related matters emanating from their supply chain, this may be nearly impossible where the supply chain inputs are both project-critical and technologically complex.

Survey highlights problem
We now have some data on the extent to which local authorities in England and Wales insist on the use of the standard subcontracts that accompany the standard main contract that they have adopted. A survey of local authorities carried out by the Specialist Engineering Contractors’ Group earlier in the year yielded some interesting responses. But, firstly the statistics.

A total of over 200 authorities responded. In Wales 31% of local authorities insist on the use of the relevant standard subcontract. In England the figure is a little higher at 39%. Many councils not mandating the relevant subcontract felt they should be doing so, but the reasons for holding back were not clear. Some felt they had no right to insist on the use of the standard subcontract, while some said it was primarily a decision for the tier 1 contractor.

Others explained that they assumed that the tier 1 contractor would use the standard subcontract but had no arrangements in place to monitor this. Interestingly, most of the councils mandating the use of standard subcontracts were either the London boroughs, or smaller or rural councils.

How to address the issue
There is some limited scope in clause 26 of the NEC3 Engineering and Construction Contract for exercising control over the conditions of contract used in the supply chain. The tier 1 contractor is required to submit its subcontract conditions to the project manager, unless the Engineering and Construction Subcontract is intended to be used or the project manager has agreed to forego such submission.

The project manager can object to the subcontract if it does not allow the contractor to deliver the works or if it does not contain a statement that the subcontract parties will act in a spirit of mutual trust and cooperation. I doubt whether the second reason will, in practice, make much difference. I have seen bespoke contractsthat transfer all risk from one side to the other and still manage to state that the parties will act in a spirit of mutual trust and cooperation. 

My view is that clients should consider inserting in the contract a requirement that the relevant NEC subcontract is used. This would be beneficial to the client and the whole of the delivery team."
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