College of Contract Management United Kingdom
College of Contract Management
United Kingdom

What is the NEC4 and how is it different from the NEC3?

What is NEC4 and how does it help the Construction and Engineering Industry? 

 

What is NEC4?

 

The NEC4 is a group of contracts that have been brought together with the aim of improving contract management. It aims to do so via the definition and implementation of good project management and sales strategies.  It also focuses setting the boundaries of the legal relationships and the importance of doing so. The NEC4 is an umbrella term, referring to a wide variety of contracts across the engineering and construction industry. The aim of which is the provision of guidance for effective project management. It aims to create high quality results, in a timely manner whilst remaining cost efficient. Understanding of the NEC and its application in practice is very advantageous and NEC courses are in high demand.

What is a Construction and Engineering contract?

 

A Construction and Engineering contract is an agreement between multiple parties regarding a project due for completion. Contracts can be both written and verbal depending on preference and cover a wide area of the project at hand. The contract will outline the basics of the project, such as the price, the timeline and estimated completion date. As well as the basic agreements, the contract will also cover insurance, the responsibilities of the parties and any warranties. The contract acts as a quality agreement between the parties involved and can safeguard any agreements regarding payment terms. Construction and Engineering contracts act as protection for all participants and can make dispute resolution a much easier task.

 

Benefits of a written contract as opposed to a verbal one

 

There is a vast difference between a written and a verbal contract and the implications it can hold for the teams involved. Previously it has not been unusual for companies to choose a verbal contract. However this method is slowly starting to wane as people realise the benefits of having the agreement in writing. Although verbal contracts may seem easier to start off with as there is less paperwork involved as they take much less time to finalise, the advantages of a written contract are becoming more prevalent.

Having a written contract means having written payment terms, agreed liability if something doesn’t go to plan and can be an accurate definition of the terms involved. With all this being recorded you are then able to use this contract as a reference point throughout the project. This is very beneficial if a dispute should arise as you have prior risk management outlined, removing any opportunity for it being a case of “their word against mine”. For a written contract to be effective it needs to be written to a high standard. It needs to be a comprehensive document, covering all areas of the project. That is why many companies chose to use the NEC4 contracts. Not only are the NEC contracts well written but they also remove the need to write the contract yourself, decreasing time spent on paperwork.

 The Evolution of the NEC 

 

The NEC [New Engineering Contract] was originally introduced into circulation in 1993. Its goal being to create a sense of clarity to the sector through the use of clear, plain language. Just two years later in 1995 an expanded version was released, this was referred to as the NEC Engineering and Construction Contract (ECC). The NEC EEC contained further detailed subcontracts, as well as the addition of a few extra subdivisions.

Fast forward a further 10 years and the revised version is released. Here we saw the release of the NEC3, containing further categories in an organised suite of contracts. This continued to develop and expand over the course of the next 12 years until the announcement of the NEC4. This has been considered as an evolution of the previous works. A streamlined edition, considering multiple areas of improvement such as user feedback, emerging best practice, and improved flexibility. Since its introduction in 2017 we have seen addition of further material with the most recent update released in 2021.

What is different between the NEC3 and the NEC4? 

 

Although the key principles and goals of the NEC3 can still be found within the NEC4, there have been a variety of changes implemented. Via feedback provided by the industry, an enhanced version of the previous model was created. The aim of the NEC4 is to improve the process as opposed to just providing it. One of the main goals is to remove the notion of it being an “us and them” environment. The aim of which is to work towards something of a more trusting and co-operative work agreement.

A few other changes includes;

  • Introduction of new contracts – The DBO (Design, Build and Operate) Contract. The ALC (Alliance Contract) and then FMC (Facilities Management Contract)
  • Improved clarity across the series, providing a sense of simplicity within the model
  • Increased support in helping avoid conflict and manage the service quality levels, as well as much more.
  • The introduction of contemporary new features with the aim of increasing efficiency and outcomes of their work.
  • The adaptation of The Early Warning Process.

The points listed above are just a few examples of the changes you would see when comparing both models alongside one another. The changes were influenced by feedback from the industry regarding the NEC3. The NEC took this feedback and applied it to the NEC4, hoping to meet customer demands.

Whilst all new applicants looking at purchasing an NEC will be pushed towards the recently updated version, anyone still working with an existing contract need not be concerned as existing contracts will not be affected.

Types of NEC4 contract

 

There are many types of NEC contracts, each with a variety of subsections, suiting the contract to the job at hand. A closer look at a few of the contracts highlights the flexibility of the uses of an NEC contract.

Engineering and construction contract

The NEC4 Engineering and construction contract contains all necessary requirements to ensure the successful completion of your building project. It provides the means to reach high standard results in a quick and cost-effective way. This is the main NEC Engineering and Construction contract from which many smaller contracts have been moulded.

Alliance Contract

This is the NEC’s multi-party contract. That allows multiple companies from across the industry to work together on larger projects. This contract works towards collaborative working, linking back to the NEC’s aims to remove the “us and them” mentality. With the companies all working together towards the same shared goal, they also share the risks of the project. This can help increase teamwork on the project and mean less disputes between parties, making the experience better for the client.

Design, Build and Operate Contract

The NEC4 Design, Build and Operate (DBO) contract is aimed at creating an integrated delivery solution extends the demands of the clients until after the completion of the contract. The DBO contract ensures that the contractor not only designs and builds the project but also takes ownership of operating the client’s business for a selected time period. This can be from 3 years upwards, linking in closely with the UK Government’s “soft landing” approach. Not only is this available for new projects, but the NEC has worked to ensure it is suitable for the upgrade or extension of existing projects too.

Examples of NEC4 contracts in practice

 

The NEC provides contracts to construction and engineering jobs on a worldwide basis. These projects can take multiple years to be completed and the NEC guidance is there to help form a guideline to assure demands are met to a high standard. Contracts can cover renovations, new builds and project expansions. Through the examples below we can see the contracts uses and gain a further understanding of the application of NEC4.

The Dragon’s Heart Temporary Hospital was erected in 2020 following high demand for hospital beds following the shock spread of Coronavirus. Through the use of the NEC4 contract Option E (cost reimbursable contract) and the NEC4 Professional Service Short Contract (PSSC) they were able to build a temporary hospital, able to bed 1500 people, in just 8 weeks.

The HMNB (Her Majesty’s Naval Base) Clyde is based up in Scotland, in the UK. The Ministry of Defence have used the NEC4 framework to assist in the contract management of their 10 year refurbishment. HMNB Clyde is a nuclear submarine base and is the home of the Royal Navy Submarine Service. This work will take place over a number of years and is set to be completed in 2024. This is going to be a complex refurb, with the hopes of becoming a single integrated operating base.

Another project in motion is the delivery of over £2.5 billion worth of installation and media works for the company Virgin Media. Virgin Media is a multimedia provider in the UK, and is using the NEC4 contracts to extend, maintain and upgrade their network. The company already reaches over 16 million homes in the United Kingdom, but is hoping that through development and work using the NEC contracts, they will be able to increase this number over the next few years.

How can The College of Contract Management help me understand NEC4? 

 

Here at The College of Contract Management we understand the importance of a well issued contract and the effects it can have on the both the client and providers. That is why we offer a Professional Diploma in NEC Contracts, offering you the ability to meet your full potential.

Given the nature of the content it is most likely that anyone in the Planning and Construction industry will, at some point, come across the NEC. We at The College of Contract Management want to provide you with the skills and understanding to use these contracts to their full advantage. We suggest this course is appropriate for [but not limited to]:

  • Contract Managers
  • Service Managers
  • Quantity Surveyors
  • Project Managers
  • Supervisors
  • Clients
  • Consultants

The courses are hosted online making it accessible for all those who wish to apply. The aim is to make it as convenient as possible as it can be completed from the comfort of your own home. The delivery of the course is not only accessible, but it is also interactive, with each lecture delivered via a video call. This gives attendees the option to ask questions whenever they feel necessary to ensure they get the support they need.

The course lasts roughly between 1 to 4 months dependant on the individual and payment is split into monthly instalments. This makes the course ideal for those who are still working, as you can complete the course around your work life. The course covers a variety of subjects, increasing understanding on a variety of contracts. It will teach you about the responsibilities of the parties concerned and how to solve potential issues that may arise. Effective navigation of contracts is a very sought after skill, one employers find very valuable.

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