NEC Z clause award highlights the pitfalls of their misuse

Key Points

• NEC secondary Option Z is for additional conditions of contract.
• They should only be used by clients to introduce elements that make the contract industry- or company-specific to meet their particular needs.
• Z clauses should not change or undermine the principles of the contract, such as the real-world examples provided here.

At the London NEC People conference June 2025, I held my annual ‘Z Clause of the Year Award’. For  the avoidance of doubt, this is not an award anyone should want to win. 

NEC secondary Option Z clauses allow clients to add to or alter a standard NEC contract. Given that NEC contracts are more concise than most other standard contracts, there will be elements that a client may need to introduce to make it industry- or company-specific to meet their needs. This could be in the form of extra clauses, or by altering existing wording to reflect their specific requirements. 

For example, a client may wish to alter a standard clause to fine tune the associated risk profile they believe will meet their balance of best price and cost certainty. However, this can sometimes be taken too far, and a client may end up significantly changing the principles of the contract in the mistaken belief this will lead to a lower price. In reality, any risk increase to a contractor will generally lead to a higher price. 

Any client-bespoke amendments will not have gone through the same scrutiny, checks and verification that the rest of the contract clauses have done over the past 30 years of evolvement and development. As such, anyone signing up to such amendments needs to consider how they may significantly alter their risk profile and/or may affect their own insurance. This may also increase the need for each party to rely more on lawyers, which NEC standard forms are designed to avoid. 

Award nominations

Here are some examples of the nominations we received this year, all of which will either increase the potential for dispute, put undue risk on onto the contractor or delay completion:

• Clause 11.2 – adding subjective defined terms such as ‘best practice’, ‘good industry practice’, ‘concurrency’, ‘applicable standards’ or ‘reasonable endeavours’ 
• Clause 13.8 – adding that a project manager may withhold acceptance of a contractor’s submission for ‘any reasonable reason’
• Clause 17.1 and/or clause 63.10 – amending so that client’s errors become contractor’s risk
• Clause 20.1 – adding subjective obligations like acting ‘regularly and diligently’ or ‘in a proper and  workmanlike manner’ 
• Clause 21.2 – adding subjective and onerous reasons for not accepting a contractor’s design 
• Clause 31.3 – adding subjective reasons for not accepting a programme 
• Clause 32.1 – requiring a revised programme to be issued for acceptance with every compensation event
• Clause 36 – altering to state the project manager can instruct the contractor to accelerate and then make their own quotation for this 
• Clause 60.1 – deleting some of the 21 standard reasons for which the contractor would be able to notify a compensation event 
• Clauses 61.4/62.6/64.4 – deleting ‘deemed acceptance’ within the compensation event process 
• Clause 11.2(26) – increasing the number of disallowed costs 
• Schedule of cost components – deleting items 

Client considerations

It may well be that the clients involved in the above examples did not really appreciate the negative impacts these changes could have. All clients and their advisers need to seriously consider whether any amendments they feel they need to make to an NEC contract align with the outcomes they are looking to achieve.

For example, if a Z clause increases a contractor’s risk, they will raise their tender price accordingly or may decide not to bid at all if the uncertainty or size of risk is too great. Equally, an unwary contractor might inadvertently enter a contract with adverse terms that may lead it and the project to fail. 

Also, any Z clause that creates ambiguity or subjectivity undermines the very principle of NEC contracts of trying to avoid unnecessary disputes. 

And the winner is…

The winner of the 2025 Z Clause of the Year Award was the addition of the following two clauses in an NEC4 Engineering and Construction Subcontract (ECS): 

• 27.5: Subject to clause 27.6, if the Contractor purports to give any instruction to the Subcontractor or his authorised representative otherwise than in writing, it is of no immediate effect and the Subcontractor asks the Contractor to provide a written confirmation instead. Subject to clause 27.6, any instruction provided by the Contractor to the Subcontractor pursuant to this clause 27.5 only takes effect as from the date of the Contractor’s written confirmation of that instruction.
• 27.6: Notwithstanding the provisions of clause 27.5, the Contractor is entitled to demand immediate compliance with a verbal instruction. Where instructions are issued by the Contractor under this clause 27.6 the Contractor shall provide written confirmation of that instruction as soon as practicable.

So, new clause 27.5 says do not follow a verbal instruction, and then new clause 27.6 states that despite what clause 27.5 says, the contractor can give a verbal instruction and expect the subcontractor to act on it.

Conclusion

NEC Z clauses are not in themselves a bad thing, but they need to be well thought out and well written to ensure they bring the benefit to the client and the project that the drafter intends. 

By highlighting how Z clauses should not be used through the annual Z Clause of the Year Award, I hope that NEC users worldwide can avoid the same pitfalls and learn how best to use Z clauses – if indeed at all.