One from the engineers

Contracts
The New Engineering Contract doesn’t even mention architects, but flexibility and clarity make it the ideal tool for any building project whoever is in charge, says Frances Forward

Architects are mentioned nowhere in NEC3 – the new engineering contract (3rd edition) – yet this standard form contract can be used to advantage on architect-led building projects. So it is well worth getting to grips with its mutual trust and co-operation.

For a start, the NEC3 contract is flexible enough to be made to fit the project, rather than the project being shoehorned into an ill-fitting standard form contract. And its pick and mix approach allows your creative design to benefit from a creative contract.

NEC3 works under any procurement route. Once you are familiar with NEC3, you can potentially use it on any project, under any jurisdiction. Its flexibility allows different levels of partnering to be accommodated without it becoming a multi-party contract, while the architect can choose any combination of designing only (under a professional services contract), acting as supervisor in relation to quality and acting as project manager in relation to time and cost.

NEC3 contracts can be truly back-to-back across the supply chain with an Orange Book Professional Services Contract (PSC) for consultants, Black Book building contract and Purple Book subcontract for specialists. More than just a record of the parties’ legal rights and obligations, NEC3 is a project management tool, requiring proactive engagement. Although it requires more front-loading of staff resources, it needs no more resource overall if it is properly operated. And it operates in real time, avoiding difficult decisions being saved until the end.

The contract has a three-tier structure, starting with the Core clauses which are discrete essentials, not intended to be altered. For clarity, they avoid cross-referencing. Next come the Main Option clauses, one of which must be chosen to determine the payment mechanism: for example Option A is a priced contract with activity schedule (lump sum), while Option C is a target contract with activity schedule (pain/gain risk sharing/ incentivisation). Lastly come the Secondary Option clauses, which broadly fall into two areas: those which make ‘standard’ provisions a matter of choice – for example X7: Delay damages, or X16: Retention – and those which allow more sophisticated provisions like X2: Changes in the law, or X3: Multiple currencies.

Beware of Option Z, which are user-defined secondary option(s) to augment, rather than amend, the core clauses. There is significant evidence of abuse of Z-clauses, usually due to a lack of understanding on the part of clients, or their lawyers. Z-clauses, which seek to turn NEC3 back into a more conventional standard form contract in terms of content or drafting style, are at best meaningless and at worst dangerously conflicting. Architects administering an NEC3 contract should be prepared to take charge of putting the contract together from the outset – including limiting Z-clauses to those strictly necessary. For most projects, none at all should be needed.

Either Dispute Resolution clause W1 or W2 must be included, depending on whether the Housing Grants, Construction and Regeneration (HGCR) Act 1996 does not / does apply respectively. This act hijacked NEC 2nd edition style adjudication and the W clauses respond to the need to allow act-compliant adjudication, while acknowledging that NEC3 is also used where the act does not apply.

The (Shorter) Schedule of Cost Components, or (S)SCC, is essentially a methodology for objectively assessing legitimate costs: Defined Cost. It is not a price list.
Contract Data Parts One (Employer) and Two (Contractor) are the project-specific sections of the contract, making the generic core, main option and secondary option clauses operable.

Works Information describes what has to be built and any constraints in doing so – this is the ‘bucket’ into which all the production information should be dropped. (Note that in the PSC, the ‘Scope’ takes the place of the Works Information and contains the consultancy services and any constraints.) Meanwhile, Site Information is any contextual information that would affect a contractor’s risk – nothing should be put in this bucket unless the employer is happy for it to be relied on.

Finally, the Agreement is drafted to suit each project, with NEC3 incorporated by reference (see the NEC3 guidance notes and flowcharts).

From the architect’s point of view, NEC3 has particular advantages. The Project Manager and Supervisor roles allow as much or as little of the contract administration to be done by the architect as wanted. The programme, effectively a critical path requirement, is kept current so the architect can rely on it. Changes can be controlled, as time and money are inextricably linked in compensation events, which are dealt with contemporaneously, using the programme and the (S)SCC.

Communications are reciprocal and cover the entire contract administration; specimen proformas avoid the need for letters. For example, early warning notification manages risks affecting time, cost or quality issues.

The architect can control the definition of completion using the Works Information, if the default of ‘everything’ is not desirable.

And lastly, any amount of contractor design is permissible, from none to all of it. The extent can be altered post-contract by changing the Works Information. There are no provisional sums, as time and money can be adjusted at any point via the compensation event procedure.

The Office of Government Commerce endorsed NEC3, but it can be used on projects from a university department to a house extension.

Frances Forward was a member of the NEC drafting 2000-5 and is director at Haus Ltd