THE TROUBLE WITH anything that is giventhe tag ‘New’ is that it starts to look a littleodd when it is twenty years old and stillreferred to with that prefix. The first edition ofthe New Engineering Contract [NEC - alsoreferred to as the Engineering andContraction Contract - ECC] was published in1993, so in purely chronological terms it ishardly ‘new’ at all. However, it was certainlygiven a new lease of life when this form ofcontract was given the endorsement of theUK Office of Government Commerce as theform of choice for any government sponsoredworks, the endorsement is prominently placedwithin the first few pages of each of the NECpublications. NEC is also more recently the‘new’ kid-on-the-block in terms ofinternational work as other governmentsfollow suit for public procurement across theglobe. Some people will already be NEC old-hands, but with the rapid spread of its usage,

if one has not done so already, then withinthe coming several years getting to grips withmanaging projects based on the NEC formwill be a new experience for many.

From its first edition in 1993 the NEC isnow in its third edition [NEC 3] published in2005. The NEC began life out of a perceiveddissatisfaction with the orthodoxy of theInstitute of Civil Engineering forms which hadbeen around for the previous fifty years or so.It is not too much to say that it was, and toan extent remains, something of anevangelical movement and, with the growingacceptance of NEC one can hear thedeclaration of the faithful that, “we wereright!” This was almost not the case, the newform when first published had a slow take-up,it was only the intervention of one Sir MichaelLatham with his government report on the illsof the UK construction industry[1] that life wasbreathed into the form with his endorsement

of the co-operative and proactive approach tocontract relations which its supporters sayNEC promotes.

Brevity and clarityThe wording of NEC clauses is very sparse,perhaps rather unkindly it has been describedas ‘ladybird’ language. The brevity is aimed atpromoting clarity, perhaps a blessed relieffrom over-wordy contract clauses and multi-levelled decimalised points favoured by someforms. It is however submitted that thisbrevity, and hence clarity, is more apparentthan real. Running to some 154 pages theNEC guidance notes provide help andassistance on what is meant by the varioussparsely worded clauses. NEC is at pains topoint out that the guidance notes do notform part of the contract, on page 1 of theguidance notes it says:

“Neither these guidance notes nor the flow

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Paul Cullinan of Nexus Contracting Services Limited talks us through the‘love it or hate it’ NEC contract form

New EngineeringContract - an overview

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charts published with the contract arecontract documents, nor are they part ofthe ECC. They should not be used for legalinterpretation of the meaning of the ECC.”

In practice though, one cannot read an articleon the NEC or see a submission, for example,to an adjudicator without liberal referencebeing made to, and indeed reliance beingplaced upon, the guidance notes. Theeminent commentator Sir Humphrey Lloyd QC[ex judge in the UK Technology andConstruction Court] opined on this aspectwhere he said:

“The guidance notes state very clearly thatthey are not contract documents; that theyare not part of the ECC; and that theyshould not be used for the legalinterpretation of the ECC. This is sensibleand proper; although in reality arbitraltribunals and courts will rarely now refuseto look at such notes, if presented withthem.” [2]

So, it would seem that despite the NEC’sattempts at brevity and clarity the morelengthy guidance notes have become de factoextensions of the main and option terms.

This reliance on the guidance notes may bebecause the form and its sparse wording arestill untested legally, there are almost noreported cases on the NEC. Gone then, is thecertainty of decades of jurisprudence which

underpins the more ‘traditional’ forms. Somewould argue that the lack of case law on theNEC, even after twenty years, is a sign thatthe clarity of language works and the partiesdo not need to resort to legal action to havetheir rights determined, more cynically it issaid that no-one wants the risk of being thefirst guinea-pigs of this completely novelapproach.

Project management approach versuscontract obligations approachThe aim of the form is to focus less on theparties respective obligations and put projectmanagement centre stage. Consequently,commentators on NEC divideinto, ‘love it’, ‘hate it’, camps.The two camps are likely to bepopulated respectively byproject managers in favour andlawyers as detractors. I amnever a supporter of the viewthat one should only take thecontract out of the draweronce one has a problem.However, that is certainly notthe aim of NEC and it is verymuch designed to be a‘manual’ of how a projectshould be run and managed,such tools as ‘early warnings’,

Risk Registers and risk reduction meetings arenot matters which one will normally find inpurely lawyer-drafted forms. That said, the‘manual’ should also be followed closely inrespect of the areas of the form where it doesdeal with legal obligations. NEC deals indefinite timescales after which rights can belost, there are no ‘soft landings’ with NEC, theethos is to deal with matters quickly, be theydelay or money claims; changes to the worksand the like, and then get on with the rest ofthe project with each side aware of where itsrisks lie. This is a very laudable aim but the‘manual’ needs to be followed to the letter tomake it work.

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‘Commentators on NECdivide into, ‘love it’, ‘hate it’,camps. The two camps arelikely to be populatedrespectively by projectmanagers in favour andlawyers as detractors’

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Contracting jack-of-all-tradesFrom its first versions aimed at replacing re-measurement forms in civil engineering works,principally for the UK industry, the form hasgrown to an extensive and multi-colouredcompendium of contracts, sub-contracts,supply agreements, consultancy agreements,guidance notes and flow-charts. The variousparts of the contract are assembled in ‘kit-form’, described in further detail below, so as tobuild, ‘Airfix’-like, into a contract suited to theparticular project. By the inclusion or deletion ofa few clauses, the NEC turns into either anemployer designed; design and build or cost-

plus contract; the inclusion of a couple of moreclauses turns NEC into a contract suitable forinternational projects to rival the FIDIC forms inthat arena [be in no doubt that the variouscontract drafting bodies are rivals in seekingmarket share]. NEC is said to be suitable for allmanner of projects way beyond the originalscope of civil engineering including buildingand process works. The NEC then is a veritablecontracting Jack-of-all-trades, the openquestion however is, in aiming to be all thingsto all people does NEC do any of them well?

StructureThe structure of the contract is something ofan alphabet soup, the terms and conditionssection comprises a set of core clauses whichare applicable irrespective which of thefollowing Options are selected. To the coreclauses various Options are selected, the first isto choose one of the ‘main Options’, these areprincipally concerned with the basis for thevaluation and payment of works undertakenand are listed below:• Option A - Priced contract with activity

schedule• Option B - Priced contract with bill of

quantities• Option C - Target contract with activity

schedule• Option D - Target contract with bill of

quantities• Option E - Cost reimbursable contract• Option F - Management contractAt the end of the main Option section,irrespective of which Option, A to F, isselected, a further selection is needed atClauses W1 and W2 on an either-or-basis.These options set out the dispute resolutionprocedures and depend on whether thecontract is to be carried out in the UK where

they will be subject to the adjudicationprovisions of the UK Housing GrantsConstruction and Regeneration Act (HGCRA),or outside the UK where they are not. Thatsaid, there would be nothing to stop theparties from other jurisdictions adopting theUK Act by agreement.

Next are added the ‘X Options’, X1 toX20[3], none of these are mandatory and are ineffect ‘bolt-on-goodies’ dealing with suchmatters as price adjustment, sectionalcompletion and advanced payments. The ‘YOptions’ are again UK specific, but less bolt-on-goodies and more essential if one is to

avoid UK statutory default provisions whichwould otherwise apply. Y(UK)2[4] makes thecontract compliant with the paymentprovisions of the HGCRA. So long as Y(UK)3 isadopted it effectively switches off rights whichwould otherwise accrue to the third partiesunder the UK Contracts (Rights Of ThirdParties) Act 1996.

At the end of the terms and conditionssection of the contract comes the troublesome‘Z Options’. I say troublesome as this is thepart of the NEC Contract where the contractdraftsman is given something of a free hand toadd in bespoke items which are particular tothe project. In practice however, and againcontrary to the advice given by NEC itself inthe guidance notes, they are often used tomake changes to the standard clauses notedabove, by way of ‘delete and add back’. Asnoted above the terse drafting style of NECgives a very fine balance when interpreting itsprovisions, the type of amendment oftenincluded in the Z Options can very easily upsetthis balance. Anecdotally, there are instanceswhere the Z Options are so extensive and thedrafting style so out of keeping with the NECthat they render the clauses in the variousOptions noted above at best very difficult tointerpret and at worst meaningless. I supposethe advice is, that if parties want to make theNEC look like more ‘traditional’ forms thatthey are used to, then they should use thetraditional form and not the NEC.

By way of appendices to the terms andconditions section of the contract are twodocuments, the first is the Schedule of CostComponents which is a set of rules for whatcosts can be included and which excludedwhen either pricing the original works in thecost reimbursable main Option or additionalworks for the other main Options. The second

is the Contract Data, this is the bespokeinformation which is needed to make many ofclauses in the documents described abovework. The Contract Data itself begins withsomething of a health-warning where it says:

“Completion of the data in full, accordingto the Options chosen, is essential to createa complete contract.”

The warning should be well heeded, and greatcare should be taken to ensure that the datainserted is compatible with the selected mainand secondary options. It is not unknown forContract Data to be inserted which relates toOptions which have not apparently beenselected in the main body of the contract.Considerable difficulties of interpretation willthen arise, the usual rule is that all termsshould be given meaning and effect, and so,does the insertion of apparently orphanprovisions mean they are just that, that is,superfluous wording? Or does it mean thatother, otherwise unintended, Options areimported into the contract by reference? Theseare open questions with no ready answer butare fertile ground for disputes.

And finally, with its newness, gone are ‘old-hat’ phrases such as ‘specification’ and ‘siteinvestigation report’, instead following onfrom the main conditions [A to Z; Schedule ofCost Components and Contract Datadescribed above] we have Works Informationand Site Information respectively. Again, theWorks Information is another area whereemployers’ contract draftsmen can feel acertain release from the rather terse draftingstyle of the NEC and begin to include allmanner of obligations not really in keepingwith the fine balance which the mainconditions of the NEC tries to achieve.

ConclusionFor those, like me, brought up in the orthodoxyof the ICE and FIDIC contracts the landscapepresented by the NEC is an unfamiliar one. Thestyle and terminology is completely differentfrom the other forms, nothing in NEC has afamiliar ‘tag’, there are no ‘variations’, thereare ‘no extensions of time’, there is no‘practical completion’. Of course, all theseissues are dealt with but in NEC’s owninimitable fashion using its own particularterminology. NEC needs some perseverance togain proper insight and nothing less than totalemersion in the project management ethos ofthe contract if it is not to unravel. When one isworking on an NEC contract, one has nochoice but to become a ‘believer!’

REFERENCES

1. Constructing The Team (HMSO, 1994)

2. [2008] International Construction Law Review 468

3. Albeit that X8, X11 and X19 are not used under NEC 3

4. The reference Y(UK) 1 is not used in NEC 3

‘The NEC then is a veritable contractingJack-of-all-trades, the open question howeveris, in aiming to be all things to all people doesNEC do any of them well?’

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