In a previous article, we introduced the FIDIC contract, its specific features, the various FIDIC types and the points to watch with these templates. In this article, we look at one of its (more or less distant) cousins: the NEC contract.

1. NEC contracts: definition and overview

Straight to the point: “NEC” stands for New Engineering Contract. NEC contracts are a suite of contract templates published by the UK Institution of Civil Engineers (while the FIDIC suite is published by the International Federation of Consulting Engineers).

Another parallel with FIDIC, the NEC templates were shaped by practice and have evolved over time. Four NEC editions have been released in the past 30 years. The current one is called “NEC4”, published in 2017, and it ships with no fewer than 18 distinct contract templates.

A lesser-known alternative to the FIDIC suite (which is of French origin, by the way), NEC has been adopted by several states with a common law system, such as the United Kingdom or Hong Kong. It is also used on many projects in Australia, Ireland, the Netherlands, New Zealand and elsewhere.

When the first version was being drafted in the early 1990s, the NEC’s ambition was “simple” and summed up in three main objectives:

• Offer a flexible framework;
• Give pride of place to good project management practice;
• Stay simple and intelligible in the drafting.

On the form, this was largely a successful bet. The contractual framework sits somewhere between a template and a contract, offering readability, pragmatism and, above all, flexibility, with core clauses, options, and the famous “Z clauses” that act as particular conditions.

On the substance, real efforts are visible (particularly in the latest edition) to streamline the contract management process and reduce the administrative cost of running the contract. New templates have also appeared, such as the “DBO” (Design, Build and Operate) or the Alliance Contract, which respond to new market expectations in construction and major projects around stakeholder involvement in operations, and around integration and cooperation between them.

2. NEC: key clauses and what is at stake

Picking out the “most important” clauses in the NEC4 suite is tricky, given the variety of templates and use cases, and the flexibility these templates offer. We will publish short practical guides for the main contracts in the NEC suite in the near future.

That said, a few clauses are quite representative of the NEC philosophy, both for the flexibility on offer and for the weight placed on contract management during negotiation and during execution.

• Clause 14.3: “the Project Manager may give an instruction to change the Scope“. For non-bilingual readers (and those who do not use Deepl), this clause simply states that the client’s project manager can, on a single instruction, modify the project scope. On the client side, any seasoned contract manager will want to amend this standard clause, or make sure internal processes are in place to control its impact and reach. On the supplier side, the more experienced players will see in it a subtle way to adjust or change the contractual scope.
• Clause 10.2: “The parties, the project manager and the supervisor act in a spirit of mutual trust and co-operation“. This clause may look trivial at first glance, but it is central to the ambition of the NEC contract, and more broadly to the importance of working relationships and quality of communication in a project. Worth noting that the supervisor and the project manager, although appointed and paid by the client, are not part of “the parties” and are meant to act impartially towards them.
• Clause 15.1: “Contractor and the Project Manager shall give an early warning by notifying each other as soon as they become aware“. Simple as it is, this clause captures the NEC mindset and the difference with more traditional contracts like FIDIC. Early notices or early warnings are everywhere in NEC contracts. The right reflex is not just to receive them without taking offence, but also to set up the internal processes and feedback loops needed to handle them, and to issue them in turn when relevant.
• Clause 13.1: “Each communication which the NEC contract requires is communicated in a form which can be read, copied and recorded. Writing is the language of the contract.” This clause shows the level of contract management discipline expected. A lot of information and decisions are exchanged in meetings, and they need to be recorded in a defined form to qualify as a valid communication.
• Clause 61.3: “If the contractor does not notify the compensation event within eight weeks of becoming aware that the event has happened, the prices, the completion date or a key date are not changed“. Here we have a mechanism setting a deadline to notify an event that triggers an extension of time or a price change. It shows that even though cooperation is a founding principle of the NEC, sound contract administration is not far behind in importance.

We could have added several dozen other equally important clauses, on notifications, damages, planning, cooperation or claims.

3. NEC vs FIDIC: which template to pick?

For once, let us start this final section with the answer: there is no “nec plus ultra” (we will let you appreciate the pun). Pick the template that best matches the case at hand, but also your company culture and contractual practice.

To get there, we started by visiting the official NEC website to read the arguments its creators put forward in the aptly named “why choose NEC” section.

According to the British organisation, the main strengths of NEC4 are these:

• Healthy relationship management: NEC encourages proactive cooperation and helps avoid conflicts.
• Adaptability: NEC is usable across a wide range of commercial and geographical contexts.
• Clarity and simplicity: NEC is written in plain English to limit misunderstandings.

According to its drafters, the main difference between NEC and FIDIC lies in the collaborative mindset that NEC contracts foster, where counterparties are partners on the project rather than adversaries.

Back to practice. The points above hold true, in our view, but with caveats that come with experience. A cooperative mindset, clarity or simplicity cannot be decreed. Each party will also have its own definition of what a clear contract or simple drafting looks like.

The criticisms levelled at NEC contracts typically revolve around heavy processes that generate a lot of documentation, complex contract administration and, in the end, very significant contract management costs.

At Prime Conseil, we tend to think that the difference between NEC and FIDIC is above all cultural. The two templates capture in a striking way two visions, one rooted in civil law, the other in common law. A telling example sits in the structure of the NEC contract itself, with choices to make between “main options”, “core clauses” and “secondary options”. The structure reflects a very operational, almost LEGO-like vision of how to build a contract. The numerous pre-conflict mechanisms in the NEC can help avoid litigation, but they need to be handled with care, especially with counterparties who are not used to claims and early warnings, which can sometimes feel like declarations of war.

For an audience used to civil law contractual practices, working with the NEC calls for a minimum of training and experience at every step of the contract life cycle. A company’s contract management maturity is also a good indicator when choosing between FIDIC and NEC. A company that is still building its contract management practice will likely be better served by a more traditional FIDIC template.

As an illustration, we often work on NEC contracts where the parties did not fully grasp the pricing option (options A to F), or where they wanted to make adjustments or add extra clauses (Z clauses) without realising they were creating inconsistencies and interpretation difficulties between the original clauses, the amended clauses and the additional clauses.

In the end, making a FIDIC or NEC contract project succeed comes down to good contract management practices. Before taking the leap, ask yourself the right questions about your contract management maturity and the state of your internal processes and methods. If you need a hand, bring in an expert.