Post-Covid-19 collaboration in Australia – a chance for NEC

KEY POINTS

• The Australian construction market is seeing a rising demand for collaborative approaches to project delivery as the economy recovers from Covid-19.
• The construction industry is plagued by an adversarial culture and commonly used contract that are not collaborative in style.
• NEC4 with Y(AUS) clauses is the only collaborative industry standard form in the Australian market which is compliant with local legislation.

In Australia, Covid-19 has highlighted the importance of collaboration between all parties to respond effectively to common risks and threats. Surging government infrastructure spending and a significant uplift in the number and size of megaprojects, often delivered using publicprivate- partnership models, has seen a plague of
industry claims and disputes (Terrill et al., 2020).

The Australian market is seeing rising demand for collaborative approaches to project delivery. Yet, collaborative procurement and contracting approaches are still uncommon in Australian engineering and construction. Traditional ‘hard dollar’ contracts typically used in the market are highly bespoke and drive adversarial outcomes.

Government principals frequently use contracts that are labelled as ‘standard’ but, in reality, are quite bespoke to their industry sector and project. Contract uniqueness leads to interpretation issues and contract management failures. This is reinforced in the Australian market by the scarcity of up-to-date standard form contracts that can simply be picked up and executed for the various project procurement solutions. Australian standard form contracts have not been updated for over 20 years and the community that supported these forms, including the case law and legal commentary, has waned.

A University of Melbourne research report (Sharkey et al., 2020) confirmed that the industry is plagued by an adversarial culture and that commonly used contracts are not collaborative in style. Observations included that Australian stakeholders are slow and reluctant to embrace the collaborative and relational approach that has
been encapsulated in standard forms prevalent in the UK and the USA.

New focus on collaboration

Infrastructure Australia, the nation’s independent infrastructure advisor, recently published its 2021 Australian Infrastructure Plan (Infrastructure Australia, 2021), which calls for a new wave of infrastructure reform to fully leverage the government’s historic AU$110 billion (£58 billion) infrastructure spend and drive the national Covid-19 recovery. A key opportunity identified included adopting more collaborative models of infrastructure delivery to support productivity and innovation. It recommended reducing risk and improving value for money by using common and best practice commercial arrangements and standard contract forms and delivery approaches to infrastructure. Infrastructure Australia considers this could unlock market equality and lower risk by utilising more collaborative commercial models that facilitate value for money and smaller engagements directly with contractors and consultants.
 

It has long been recognised that conservatism and excessive risk transfer in construction contracting stifles innovative outcomes (Ashurst et al., 2014). The shifting of the risk of any uncertainty, ‘drives behaviours and decisions which are conservative and counterinnovation,’ (Parr, 2015). Adversarial contracts, with their intolerance for error of any kind, are a fundamental disincentive to the adoption of technology or the willingness to try anything new.
 

Industry bodies are also making extensive calls for procurement reforms. In 2021, the Australia Constructors Association (ACA) launched its framework for a sustainable construction industry (ACA, 2020). It advocated adoption of collaborative frameworks and recognised that, ‘Improvements in industry culture are reliant on
improved collaboration between all stakeholders, such as; between workers’ representatives and employers, between contractors and designers and designers and Clients.’

NEC making inroads

As NEC users know, NEC contracts provide the type of collaborative contract frameworks for which the Australian construction industry is calling. In recent years, some Australian projects have indeed used NEC contracts. The AU$260 million (GBP140 million) Mount Mercer Wind Farm in Victoria was the first NEC project undertaken in Australia and was a great showcase for the contract model, the project having been completed on time and budget in 2014. Then, in 2019, Sydney Water selected the NEC4 contract suite to support the rollout of its new ‘Partnering for Success’ procurement strategy. This will see Sydney Water investing at least AU$4 billion in infrastructure projects over the 10-year period from July 2020.

The early use of NEC contracts in Australia however saw bespoke changes introduced to not only deal with Australian law, but which also shifted the risk and modified the contract away from its standard. A key issue requiring attention for using NEC In Australia is alignment of the core payment clauses with the various security
for payment legislation in Australia. In 2021, NEC published the Y(AUS) clauses which makes those amendments necessary for the NEC4 contract to achieve compliance with Australian Law, particularly the security of payment legislation.
 

For Australian projects, each standard NEC4 contract now simply needs to cite the Australian Y(AUS)1 clause in the contract data. There is no comparable industry standard form in the Australian market which is compliant with local legislation, or which falls within the broad umbrella of collaborative model. The simplicity, collaborative focus, and effectiveness at sharing risk and reward of NEC4 contracts has been specifically recognised in the 2021 Australian Infrastructure Plan where it is noted they help support the UK’s access to international markets for exporting services and attracting investment. The importance of Australia remaining an attractive and competitive market for international investment in infrastructure was a key message of the plan, where the need to be a desirable market environment built on certainty, partnership and transparency was noted. The Australian government’s AU$110 billion planned infrastructure spend to drive the national Covid- 19 recovery is dependent upon it.

Conclusion

There is therefore a real movement in Australia towards more innovative procurement solutions, with a broad recognition that construction contracting needs to become more collaborative if the infrastructure planned is to be built in a much-improved manner. The availability of NEC4’s ‘off-the-shelf ’ contract solution is an attractive option that could be well expected to become more commonly used. The motivation for post Covid 19 collaboration in Australian contracting, is a real opportunity for NEC to become more widely used in another market. 
 

References

Terill M, Emslie O and Moran G (2020) The rise of megaprojects: counting the costs, Grattan Institute.

Sharkey J, Greenham P, Bell M, Jocic W and Korolkova J, Hu D (2020) The Health of the Australian Construction Industry, University of Melbourne, (https://law.unimelb.edu.au/__data/ assets/pdf_file/0005/3501086/Health-of-the- Australian-Construction-Industry-Research- Report.pdf (accessed 24 January 2022).

Infrastructure Australia (2021) 2021 Australia Infrastructure Plan, https://www.infrastructureaustralia.gov.au/publications/2021-australian-infrastructure-plan (accessed 24 January 2022).

Ashurst, Australian Constructors Association and Infrastructure Partnerships Australia (2014) Scope for Improvement 2014, p 21, http://www.disputeboard.org/wp-content/uploads/2016/02 Scope_for_Improvement_2014.pdf (accessed 24 January 2022)

Parr K (2015) Running Towards the Future, Society of Construction Law Australia, https://www.scl.org.au/resources/running-towardsfuture (accessed 24 January 2022).

ACA (2020) Constructing the Future, https://www.constructors.com.au/wp-content/uploads/2020/10/ACA-Constructing-the-Future-09102020.pdf (accessed 24 January 2022).