Why U.S. companies should adopt NEC contracts (formerly New Engineering Contracts)

The current state of contracts in the U.S.

A manager of mine (running a significant part of Mott MacDonald in the USA) once said, ‘I admire your enthusiasm, Richard, but as for trying to get NEC contracts used in the USA, you might as well just bang your head against a wall’.  I will continue banging! This is because I see myself as a bit of a disciple to Martin Barnes, who invented NEC way back thirty years ago – and why should the USA miss out on the opportunity?

I am told that in the U.S.:

• all major asset owners all have their own contracts and have no intention of changing them
• the procurement rules are different in each state
• there is little appetite in the U.S. for ‘standard forms’ of contract
• you suffer massively from the ‘not invented here syndrome’ and have no time for seeing what is being used – and working well outside the U.S.
• The lawyers rule the roost and do not want anything standard!

How on earth does that make sense when across the U.S. trillions are being spent in the construction industry. Just how much time (and money) are wasted drafting, reviewing, negotiating, and managing bespoke contracts?

There must be a better way!

Well, if you have got this far, please have a look at NEC contracts which are already being adopted in the UK, Hong Kong, South Africa, New Zealand, Australia, and Peru!

What are NEC Contracts?

NEC (formerly the New Engineering Contract)  is a family of contracts that cover projects, physical and professional services, and supply chain, and can be used in any industry. All the families are drafted with three clear principles in mind:

1. Clarity – brevity and plain language;
2. Flexibility – e.g., on the level of design by the supplier and the form of payment;
   • lump sum
   • bill of quantities
   • target contract
   • reimbursable
3. A stimulus to good management – a contract that is used day to day and is based on a series of clear processes.

The contracts are owned by the UK’s Institution of Civil Engineers (ICE) because they funded their development 30 years ago – but they can be used in any industry and any part of the world.

NEC contracts are specifically designed to be used in any legal jurisdiction. In some countries, minor changes are required to make NEC compliant with local law and NEC has published (so far) minor ‘secondary options’ to cope with the law in the UK, Ireland, New Zealand, and Australia. No doubt there will be minor changes required in the U.S. They are also very good at-risk allocation and management.

How do NEC contracts facilitate collaboration?

World over, people are looking for contracts that facilitate collaboration. NEC does just that with:

• an obligation to act in a spirit of mutual trust and cooperation
• a clear process for ‘early warning’ – and consequences if the supplier does not
• a huge focus on the ‘program’ (oh, oh a problem there – you call it the ‘schedule’ – but do not let that worry you!)
• a very clear, timebound process for managing what the NE calls ‘compensation events) (you probably call them claims!)
• an option for a target contract that means that the Client has a direct commercial incentive to collaborate.

I have heard that the principle of ‘early contractor involvement (ECI) is getting some traction in the U.S. This is where a Contractor is employed in a ‘Stage One’ to work with the client to develop the deal for the ‘Stage Two’ to deliver of the project. NEC has that covered – either in two separate contracts or, with one of its options (X22), as a single contract. Perhaps this is a ripe starting point for U.S. companies.

Learn more about NEC contracts

I wanted to keep this short and sweet and so will stop there. If you are interested and want to look a little further, please see Mott MacDonald’s ‘Little Book’ of NEC.

ABOUT THE AUTHOR

Richard Patterson was part of the drafting team for NEC4, has been part of the ICE’s working group on procurement, contracts, and carbon/net zero and contributed to NEC’s soon to be released secondary option relating to ‘net zero’. He leads on NEC for Mott MacDonald and delivers in-house and client training and training for NEC Training, including their 4-day ECC Project Manager accreditation course. Also, the original source of this article titled CONTRACT DRAFTING was published July 13, 2022 on Richard’s CONTRCT NERDS blog.  The author’s LinkedIn blog may be accessed at https://www.linkedin.com/today/author/coolsoberandsmiling

This article, reprinted by permission of the author, is not legal advice; opinions expressed are the author’s own and do not represent the opinions of WorldCC.