NEC in Australia: Overcoming Barriers

Various Australian government agencies have recently expressed a desire to move towards more collaborative forms of construction contract, which has led to suggestions they should try using NEC.

While there are a number of cultural barriers to adoption of NEC in Australia, these could soon be overcome as the current overheated construction market is putting a much greater focus on the pricing and management of risk.

Barriers to adoption

One barrier to widespread adoption of NEC is risk allocation, which is seen as more ‘contractor friendly’ than the various construction contracts used by Australian government agencies.

For example, NEC contracts do not draw a distinction between events that entitle the contractor to extra time only and events that entitle it to extra time and extra money – NEC only recognises the latter. Consequently NEC compensates contractors for the time and cost impacts of events that, under most government construction contracts in Australia, would be the contractor’s risk or would entitle the contractorto extra time only.

Examples include unexpected site conditions, extreme weather, clients carrying out work on site not stated in the scope, or project managers withholding acceptance of a programme for a reason not stated in the contract.

Australian government lawyers also have a problem with the NEC obligation on all parties to act, ‘in a spirit of mutual trust’, as they consider meaning and legal effect of this phrase is uncertain.

Another issue is the dual role of project managers, with functions they exercise partially as the client’s agent and functions they exercise impartially, such as certifying the contractor’s claims for payment, or for extra time and money.

The dual role has resulted in much litigation in Australia, mostly because of project managers aligning themselves too closely with clients’ interests.

Opportunities for NEC

Australian government agencies are the most significant purchasers of construction services in Australia. As a result they have considerable market power, which has resulted in their unchallenged use of client-friendly contract forms. This usually delivers good value as the competitive bidding process tends to cause contractors to under-price the risks they will bear.

But when competition is not as fierce, and risks are more fully priced, government agencies find they can get better value for money by taking on more responsibility for risks.

The market for civil engineering and construction services on Australia’s eastern coast is presently overheated due to a once-ina-generation investment in public infrastructure. The industry is being stretched so is pricing risk more fully. This would appear to be an opportune time for government agencies to trial the NEC4 suite − its strong focus on risk allocation and management should help ensure they get better value for money.

The effective use of contracts that promote greater collaboration and better project management processes should also lead to improved productivity, fewer disputes and better project outcomes − with the result that the government could continue using the NEC4 suite even after the market cools.