Wise Up Wednesday – Don’t Get Caught Out By The NEC Contract!
NEC Contracts, and more importantly how not to get caught out by them, is the subject of this week’s ‘Wise Up Wednesday’.
The NEC contract is not the same as other contracts. Let me say that again, the NEC contract is not the same as other contracts, so if it’s being run like it is, then you’re potentially heading for trouble!
That’s because although it was intended to bring many benefits to all parties, there are some significant problems awaiting the unwary.
Whenever I am asked about the NEC contract, I say that there is nothing wrong with the NEC contract itself, but in practical terms there are four significant problems for Specialist Contractors:
- It is rarely set up properly
- It is not properly understood by either party
- It is usually heavily amended and thus no longer NEC!
- It is not administered properly
These four issues inevitably come back to haunt Specialist Contractors in one way or another! So, on that cheery note I will touch on a few of the problems as follows:
NEC Contracts – Start Out On The Right Basis
One of the most common causes of NEC problems is starting work in the absence of properly agreed and detailed subcontract data. The NEC depends on all the various elements of the subcontract data being completed and agreed.
If you start out without having even agreed the most basic details (and that is often the case) it is no wonder that the result is chaos and financial agony. So, it is vital that every aspect of the sub-contract is agreed and put in writing before work commences.
The Dreaded ‘Z’ Clauses
Why are Z clauses problematic? The biggest problem with Z clauses, and in fact any extra clause inserted into any contract, is that they can change the nature of the contract. Z clauses are often used by unscrupulous Contractors to make life difficult for their subcontractors.
Indeed, in its worst case I have seen over 100 pages of Z clauses which made a complete mockery of the aims of the NEC. If you are struggling to understand the methodology of an un-amended NEC contract, just think how much more difficult it is going to be to understand one that has been amended substantially by onerous amendments!
The Importance Of The NEC Contracts Programme
Practitioners will argue that the programme is the most important document in an NEC contract. After all the fact that Clause 50.3 provides for the deduction of 25% of all payments until such times as an NEC compliant programme is submitted should be telling you something!
To be compliant the programme must meet the requirements of Clause 31.2. If you compare these requirements with those of a JCT contract you might consider them to be onerous, or at least very demanding.
And whereas a properly detailed NEC programme will be invaluable in ensuring that you obtain your entitlement under the contract, not complying with the requirements can soon result in a loss of entitlement.
Proliferation Of Notices
The contract positively insists that the subcontractor shall provide timely notices of all problems, as a matter of management procedure.
Having chosen the NEC contract, are the Client/PM and Contractor prepared for the very substantial increase in the number of ‘notices’ from the subcontractor? Or will they regard these notices as ‘confrontation’? From personal experience, I can confirm that regrettably the latter is often the case.
So, it is a good idea for you to seek a pre-contract discussion at senior level to establish the lines of communication, and most importantly, to let the Contractor know you WILL be complying with your obligations! This simple measure could save a lot of misunderstanding and bad feeling later.
No ‘Rolled Up’ or ‘End of Job’ Claims
The NEC is not like so many other contracts, where the norm is for final accounts to drag on for years and claims for loss and expense may be submitted months after the end of the job. On the contrary, the NEC is based strictly on a regime whereby all matters of time and money must be notified and resolved as the works proceed.
There is no provision whatever for ‘end of job’ claims and the like!
The NEC is so written that, in the event of the rules being ignored, then it will be the subcontractor who pays the penalty in terms of loss of your entitlements. It is therefore essential to maintain a systematic ‘diary’ or ‘register’ which monitors the dates and contractual ‘shelf life’ of all early warning notices and compensation events and responses/lack of responses/disagreements etc.
If the Contractor fails to respond in the prescribed manner and time scale, this needs to be followed up immediately. Perhaps a regular fortnightly meeting is the answer, in which the parties notify and discuss the relevant matters in a structured and time-governed manner. This also has the benefit of taking some of the heat out of contentious matters.
As you have probably gathered from the above, operating the NEC procedures correctly requires lots of administration by technical staff. You cannot operate the NEC on a shoestring or you will miss out!
All in all, I would advise you to approach and conduct the NEC contract with:
- very careful preparation
- appropriate tender allowances for conformance
- appropriate and sufficient staff resources
- a proactive attitude which reflects the NEC philosophy
- pre-contract training of all technical, supervisory and administrative personnel
- diligent adherence to the rules and time limits
If the correct approach is adopted, and the rules closely adhered to, then the NEC contract has a great deal to offer all concerned. However, a careless, under-resourced and/or unprepared approach will very likely lead to disaster.
Pick Up The Phone
A phone call to obtain appropriate expert advice at the appropriate time will cost nothing in comparison to the cost of resolving problems or losing your entitlements later on.
You can speak to one of our experts free of charge on our friendly helpline on 01773 712116 or email email@example.com for a free no-obligation initial discussion, so that you can get a very quick idea of what we can do to help you. You can also contact us using the Contact Page.
And please do not think that if you are the boss you should automatically have all the answers. This is simply not the case, we have years of professional and practical experience of dealing with this stuff every day, and we are here to help you.