Using NEC outside of the UK: an update

Nearly 12 years ago, the lead author published an article in Issue 47 on using NEC outside the UK (Patterson 2009). It followed a paper the previous year in the International Construction Law Review by Humphrey Lloyd QC, one of the world’s leading international construction law experts, who concluded NEC3 contracts were suitable for world-wide use (Lloyd, 2008).

Since then, international adoption of NEC3 and the 2017 NEC4 contracts has steadily increased. In addition to the UK and South Africa, they are now the default public-works contract suite in Hong Kong. There is also growing take-up in Australia, Ireland, New Zealand and Peru, and there are high-profile current and recent works and supply contracts in Antarctica, Belgium, France, Germany, the Netherlands and the Philippines.

Like the 2009 article, this update is intended to encourage consideration of NEC contracts in new countries as well as assist lawyers who may be asked to review NEC contracts for use in a particular jurisdiction. As confirmed by Lloyd, NEC and its core provisions can be used in most jurisdictions outside English law with only minor modifications.

However, lawyers advising on the necessity for additional clauses need to gain a full understanding of the NEC contract approach before attempting to draft additional conditions of contract using secondary option Z clauses. There are many examples of Z clauses that create conflicts or undermine NEC’s core principles of clarity, flexibility and stimulus to good management.

Global applicability and Y clauses

NEC contracts are designed to use plain English that can be easily read, understood and translated if necessary; be free of direct reference to provisions of any particular law; and, as far as possible, be able to be used globally.

Core clause 12.2 of the NEC4 Engineering and Construction Contract (ECC), which is the main works contract, states, ‘This contract is governed by the law of the contract’. That law is simply stated in the required place in the contract data part of the contract.

It is recognised that certain modifications and additions may be required to use NEC contracts in specific legal jurisdictions, and this is generally achieved using one or more secondary option Y clauses. There are three UK-specific Y clauses included with the contracts, and will soon be separately published Y clauses for Australia, Ireland and New Zealand (see page 1).

Issues for consideration

The plain and direct language used in NEC contracts reduces reliance on interpretation of words used in a particular jurisdiction. Instead, the natural and necessary focus of any required interpretation will be on the intended meaning of the words themselves in all key processes of an NEC contract.

Most jurisdictions recognise the principle that agreements must be observed. Clause 12.4 of ECC states, ‘The contract is the entire agreement between the Parties.’ In essence, the contract sets out the rules governing the actions required of the parties and rights of the parties. Anyone deciding a dispute should therefore use the words in the contract − and only deviate from them if required to do so by the governing law.

However, in some jurisdictions, it is not only permissible but normal to consider pre-contract negotiations, as well as documents such as NEC guidance notes. In such cases, clause 12.4 may not be effective. Lloyd noted that under certain international arbitration rules, arbitrators may – and in some cases are required to – consider ‘relevant trade usages’. The NEC guidance notes may be used to guide interpretation.

ECC has a named project manager as the key contract administrator, engaged by and acting on behalf of the employer. However, the project manager is required at clause 10.1 to, ‘act as stated in this contract’, including when assessing and certifying amounts for payment and assessing the effect of compensation events. The contract sets down well-defined rules for each of these actions.

But in some jurisdictions, particularly where civil law rather than common law applies, the concept of an agent of the client being able to assess amounts impartially and according to the rules of the contract may be difficult.

Finally, while plain language is used in most contract provisions and is likely to be read and interpreted as drafted, some infrequently used provision contain terms that may not have a clear meaning under jurisdictions other than English law. Examples include ‘claims’, ‘insurance’, ‘bankruptcy’, ‘receivership’, ‘liquidation’, ‘administration’, ‘tort’ and ‘delict’. These need to be reviewed against the requirements of the local jurisdiction.

Dispute resolution

The NEC’s clear rules and time-bound process for managing and agreeing ‘compensation events’ is NEC’s key process for dispute avoidance. Resolving any disputes that do arise is governed by one of the option W clauses.

All the main NEC contracts provide options W1 and W2 for adjudication as the first external stage in the resolution of a dispute. Option W1 is for work outside the UK but must be reviewed for compatibility with any legal requirements relating to dispute resolution in the specific jurisdiction. In 2017, the main NEC4 contracts introduced into W1 and W2 the concept of pre-named ‘senior representatives’, who try to resolve a dispute by agreement before going to adjudication.

Following adjudication, if a party disputes the decision of an adjudicator, it can take the matter to what the NEC calls a ‘tribunal’, which the client defines as either arbitration or the courts. NEC4 ECC also introduced a new option W3 for using a dispute avoidance board, as is commonly used on significant international construction contracts.

Regarding adjudicators, Lloyd noted they should be competent to put themselves in the position of the parties being expected to operate the contract. As such, in a country where NEC contracts are relatively new, it may be difficult to find a single individual with experience and understanding of the technical aspects of the project, local law and NEC contracts.

However, if necessary, the appointment of a single named adjudicator could confirm that they can have access to advice from a person competent to advise on issues specific to NEC contracts. The Institution of Civil Engineers, for example, maintains a list of adjudicators that includes suitably qualified individuals.

Cultural issues

NEC contracts, like any others, work best where there is a desire by the parties to work collaboratively for the sake of the project. But NEC contracts are different from other forms in that they are specifically designed to support and encourage such collaborative behaviour.

A key way they do that is by requiring users to follow the precise contract processes to manage the project, which means actually using the contract. However, in some cultures, such ‘contractual’ behaviour may be seen as adversarial, such that there may be resistance to doing what it says in the contract. This is despite ECC clause 10.1 requiring the parties, project manager and supervisor to, ‘act as stated in the contract’.

Wherever NEC is used, including in the UK, the requirement to follow the contract needs to be successfully addressed, not least by training. The likelihood of achieving this will be heavily influenced by the culture of the people, the organisations involved and the industry they work in.

As an example, discussions were recently held relating to potential long-term use of the NEC suite of contracts in China, including translation into Mandarin Chinese. While the culture in China is generally collaborative, it appears that using and quoting from a construction contract is still the exception rather than the rule.

Conclusions

Any party considering using NEC contracts outside the UK will benefit from a review of the particular contract in the context of local law by a competent construction lawyer, covering at least the points raised in this article. However, such competence may require some training in the NEC approach.

It is unlikely that local laws will require any changes to be made to the frequently used basic provisions of NEC. Local legislative requirements can usually be incorporated by minor additional provisions. If there is a need to amend a clause, then the clear drafting of NEC means there will be a clear place to make any necessary change.

NEC will continue to facilitate, collate and share appropriate additions to NEC contracts to deal with the legislative requirements of jurisdictions other than English Law. 

References

• Patterson R (2009) Use of NEC in legal jurisdictions other than English law, NEC Users Group Newsletter, No. 47, July 2009, pp 4−5, http://www.neccontract.com/NEC/media/NEC/ Newsletters/Patterson-on-NEC-outside-the-UKin-NEC-Newsletter-Issue-47.pdf.
• Lloyd H (2008) Some thoughts on NEC3, International Construction Law Review, Vol. 25, Part 4, pp 468-483, available in the NEC Users’ Group Newsletter, Special Issue, January 2009, pp 2−7, http://www.neccontract.com/NEC/media/NEC/Newsletters/NEC-newslloyd-special-web-version-2.pdf.

• NEC contracts can and have been used in most jurisdictions outside the UK with only minor additional provisions to suit local law, culture and practice.
• Clients considering using an NEC contract in a new country should consult a lawyer who fully understands both local law and the NEC approach.
• Local legislative requirements can be incorporated using a secondary option Y clause, such as those already available for the UK, Ireland, Australia and New Zealand, or an additional Z clause.
• Dispute resolution options W1 and W3 are specifically designed for international use

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