Not so simple: why it is vital to read and understand NEC contracts fully

Not so simple: why it is vital to read and understand NEC contracts fully

Key points

  • NEC users need to be wary of the simple language used in NEC contracts, which need to be read carefully to understand the complexity of some of the contractual processes.
  • NEC contracts are uniquely drafted, with upper case initials for defined terms, italics for terms identified in the contract data and use of the present tense.
  • NEC users need to learn how to read the contract as a whole, linking relevant clauses together.

Despite the use of plain English in NEC contracts, a common understanding of obligations is not always shared by those managing the contracts. Surveys continue to show that failure to understand contracts and administer them properly are common causes of disputes (e.g. Arcadis 2022). This article examines the unique way in which NEC contracts are written, highlights some of the pitfalls and explores the importance of reading and understanding the contracts fully.

Simplicity and clarity

A principal objective of NEC contracts is simplicity and clarity, with the purpose of making them easier to read and understand. The average sentence length is 23 words and bullet point lists are used to breaks up long sentences. Analysis of the NEC4 Engineering and Construction Contract (ECC) core clauses (ignoring bullet point lists) produces a score of 44 on the Flesch reading ease scale, which means it should be understood by the majority of 18−21 year olds in the UK – not bad for a legal document you would think.

However, good performance in readability tests does not guarantee the words will be understood. The use of plain English and the apparent simplicity of NEC contracts can deceive people into thinking the words do not require scrutiny. The brevity of NEC contracts also means that not every eventuality is provided for and should not disguise the fact that some of the contractual processes are complex.

Upper case initials and italics

NEC contracts are unusual in using capital initials for terms defined in clause 11.2 and italics for terms identified in the contract data. More conventional methods of emphasis such as bold or underlining are not used. Therefore, new users often find when reading the contract they need to tune in to the NEC drafting convention, enabling their brains to register the existence and importance of capital initials and italics.

The use of different typography is subtle and easily missed by the untrained eye. For example, ‘period for reply’ in clause 13.5 of the NEC4 ECC is in roman text, meaning that any time period for responding to a communication can be extended by agreement between the project manager and contractor. In clause 26.1, ‘equipment’ is all in lower case so has a different meaning to ‘Equipment’ in clause 11.2(9). There are several references to ‘materials’, all in lower case, in different parts of the contract, with the result that its meaning is not the same as, ‘Plant and Materials’ in clause 11.2(14), and varies subject to its context.

However, the use of defined terms does not guarantee clarity and avoid disputes. In Liberty Mercian v Cuddy Civil Engineering [2013] EWHC 3584 (TCC), the NEC3 ECC parties argued over what it meant to, ‘Provide the Works’, which in NEC4 ECC is in clause 11.2(15). The court decided that the obligation to provide a bond or guarantee was a self-standing, independent obligation and not part of providing the works. The decision was a surprise to many given the clause goes on to include, ‘all incidental work, services and actions which this contract requires.’ Horne (2014) described the decision as a, ‘neat piece of legal reasoning,’ but concluded that not many engineers, quantity surveyors or project managers would have understood the contract to have meant what the court decided.

Also, some defined terms used in NEC contracts are unorthodox. For example, ‘Plant and Materials’ are defined in clause 11.2(14) as, ‘items intended to be included in the works.’ This can be confusing for new users of the contract as the word ‘Plant’ is conventionally associated with things the contract defines in clause 11.2(9) as ‘Equipment’, such as cranes and excavators.

Furthermore, some terms are not defined under clause 11.2, so the initial letter is not capitalised, but are explained within the main body of the contract. For example, the ‘dividing date’, used in the assessment of compensation events, is explained in clause 63.1. Another example is ‘take over’ in clause 35.2.

And not all the terms used in the ECC are defined. For example, ‘physical conditions’ in clause 60.1(12), and ‘float’ and ‘time risk allowances’ in clause 31.2. In law, terms that are not defined will be given their natural and ordinary meaning, taking into account the context of other relevant parts of the contract – see Arnold v Britton and others [2015] UKSC36. The NEC4 ECC user guide provides a brief explanation of float and time risk allowances, but makes no attempt to describe physical conditions. In any event, the user guides should not be used for legal interpretation of the meaning of the contracts.

Present tense and mandatory obligations

NEC contracts are generally written in the present tense. At first this may seem strange and appear to result in the lack of mandatory language − see Rok Building Ltd v Celtic Composting Systems Ltd [2009] EWHC 2664 (TCC) Akenhead J, para 3.

However, clause 10.1 is written in the future tense with the obligation that, ‘The Parties, the Project Manager and the Supervisor shall act as stated in the contract.’ This therefore gives a mandatory effect to the actions stated in the rest of the contract.

Note the term ‘may’ is used where the action is permitted but not mandatory. For example, clause 14.2 states, ‘The Project Manager may give an instruction to the Contractor’.

Reading the contract as a whole

Understanding a contract requires it to be read as a whole, so being able to link the relevant clauses together is essential to achieve this. NEC clauses are linked by the use of defined and identified terms, common use of key words and repeat phrases.

Defined and identified terms and key words are found in the index at the back of the contract. The ‘Find’ function available with digital copies of the contract is useful in this regard. An example of a key word is ‘early warning’, which appears in core clauses 11.2(8), 15.1, 15.2, 15.3, 15.4, 61.5 and 63.7. Table 1 shows two examples where linked clauses use repeat phrases.

The principle of such linkages can be taught but proficiency has to be learnt. Understanding how the clauses operate in the context of other relevant parts of the contract compared to awareness only of each clause in isolation is the difference between those who fully understand the contract and those who do not.

Conclusions and recommendations

NEC contracts are written in plain English with the objective of achieving clarity. The apparent simplicity can hide the reality that managing NEC contracts can be complex. Reading and understanding NEC contracts requires knowledge of their unique drafting convention and how relevant clauses are linked.

A common understanding of the contract can help to reduce the risk of disputes. Training and mentoring as part of a continuous learning and development programme should be part of every project risk management strategy. 

References

Arcadis (2022), Global Construction Disputes Report 2022, Successfully navigating through turbulent times.
Horne R (2014) NEC: Campaign for plain English, Building

Table 1. Examples of repeat phrases linking relevant clauses – highlighted text on the right is repeated from earlier clauses on the left

Clause Clause
61.1 For a compensation event which arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision, the Project Manager notifies the Contractor of the compensation event at the time of that communication. 61.3 If the Contractor does not notify a compensation event within eight weeks of becoming aware that the event has happened, the Prices, the Completion Date or a Key Date are not changed unless the event arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision.
61.5 If the Project Manager decides that the Contractor did not give an early warning of the event which an experienced contractor could have given, the Project Manager states this in the instruction to the Contractor to submit quotations. 63.7 If the Project Manager has stated in the instruction to submit quotations that the Contractor did not give an early warning of the event which an experienced contractor could have given, the compensation event is assessed as if the Contractor had given the early warning.
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