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NEC3 user review

This APM independent user review was based on input from practising project professionals, asked to rate the effectiveness of NEC3 in the workplace.

Overview

The NEC3 family of contracts – Engineering and Construction Contract (ECC), Term Service Contract (TSC) and Professional Services Contract (PSC) – is a diverse range of end-to-end project management contracts designed to help users deliver projects on time, on budget and to the highest standards. It is now recognised as an international standard for project management contracts and has been used on many high-profile projects, including the London 2012 Olympic Games velodrome, Magnox nuclear power station decommissioning and Crossrail. 

Benefits

NEC3 contracts have unique characteristics that appeal to project professionals:

  • They stimulate good management
  • They can be used in a variety of commercial situations
  • They are clear, simple and written in plain English.

In addition, the clearest measurable benefit of NEC3 is the speed to settle the final account – typically less than half the time taken for more traditional types of contract.

Users also stress the beneficial effects to all parties from these contracts. Clear allocation of obligations, roles and responsibilities mean any issues can be managed promptly and effectively, helping minimise their effects on time and cost. For contractors, being able to agree change as they go along means better cash flow and increased certainty.

At a more personal level, many people prefer to work under NEC3 than traditional contracts because they encourage a less adversarial atmosphere.

Challenges

However, the NEC family should not be considered a panacea. A successful contract can still be affected by external factors such as poor business cases or project definition, as well an adversarial culture within the project or lack of project management competence and capacity.

Additional clauses – known as Z clauses – that can be added to a NEC3 contract should also be approached with caution because they can alter the intent of the original if not handled correctly.

The Z clause is there to enable the parties to agree additional conditions of contract to cater for specific needs relating to the project or type of project. In most cases, there is very little need to incorporate Z clauses. NEC contracts were structured to provide flexibility, and they offer a choice of main and secondary options to cater for a range of payment regimes and risk profiles.

Poorly drafted clauses, can alter the contract profile, often in favour of the bigger party which is why they are not advisable. If you are a subcontractor, the result may be a contract that seems very far from the original NEC Contracts spirit of ‘mutual trust and co-operation’.

The advice from NEC itself is to use such clauses  only in exceptional circumstances: “Additional conditions should be used only when absolutely necessary to accommodate special needs, such as those peculiar to the country in which the work is to be done.”

So, in summary, NEC3 contracts work well at the front end, providing a clear allocation of tasks, roles and responsibilities. They also offer reassurance over financial and time outcomes, as well as speed of settlement on the final account. However, unadvisable and unnecessary amendments can dilute the original meaning and cause confusion or disputes which, if left unchecked, can escalate and create an adversarial climate between client and supplier.