NEC contracts have a unique drafting style, using simple language written in the present tense, with the use of capital letters for defined terms and italics for terms identified in the Contract Data.
However, due to the simplicity of the drafting, NEC users often misinterpret the meaning and purpose of certain clauses, and fail to read the contract carefully enough to understand properly the contractual processes.
A 2011 study of NEC contract amendments1 found that:
- Only 6% of Option Z clauses reviewed were considered 'valid';
- 20% of the amendments were purely duplications of what was already in the contract; and
- 8% of the contracts were either onerous or unfair on the Contractor.
This demonstrates that amendments to the contract are usually either unnecessary, badly-executed, or misunderstood by parties.
Lack of Proper Diagnosis
Drafters of the NEC contract often fail to spend enough time adequately understanding what the Client is trying to achieve in the drafting, in addition to the project's constraints, risk allocation, and floating options about how those objectives can be achieved.
The Client is equally to blame for this failure, as they often do not provide proper briefing or an adequate budget to meet these needs.
An example of this is HS2, which no longer travels as far North as was originally intended. If you look at the contracts for this, there is a fundamental misalignment of the big picture motivations. The Client objectives involved the least cost, whereas the Contractors' primary incentive was to minimise time.
These objectives were clearly going in two different directions, driving the parties apart when the intention of the contract is to be collaborative.
Ignorance of Principles of Risk Allocation and Sharing
The contracts allocate risk between the parties, but in order to do this they must also allocate reward, which affects the motivations of the parties. This is done both in the pre-contract stage and during the contract.
Despite this, there are very few papers or articles by lawyers on risk-allocation, and the ones that are in existence relate solely to risk 'allocation' rather than 'sharing'.
NEC contracts now operate with the objective of risk sharing, meaning there is an incentive to take on some of the risks, as you are aware of the benefits involved. This can also be used to encourage parties to achieve better than minimum contractual performance.
Lawyers generally have a natural instinct to protect their client, and in doing so, push risk onto the Contractor, who can neither bear nor manage it. This results in a lack of bids by a Contractor as the risk is too high to take on, high premiums resulting in additional costs for the Client for risks which may not even occur, or may lead to disputes.
An example of this is that clauses allocating additional monies for Force Majeure type events (Clause 60.1 (19) in NEC) are often deleted. This has been particularly problematic since Covid, with Clients largely disregarding the wording of the contract to allow the Contractor both time and costs, but their approach should be accurately reflected in the drafting.
NEC Amendment Drafting Fundamentals
- Clauses should be set out in relevant sections, matching the numbering of the unamended contract;
- Use plain English wherever possible and present active tense;
- Short sentences, never more than 40 words unless bullet pointed: choose the correct word and use it consistently;
- Use correct terminology, including correct use of italics and capital initials and avoiding guest appearances by the Client; and
- To prevent poorly structured sets of clauses use flow charts to get the ordering correct, numbering, and bullet points, and avoid dead-ends, loop-backs to other clauses and duplication.
Good Practice
- Educate yourself on all aspects of NEC, what it is trying to achieve and how;
- Understand what the Client is trying to achieve, especially if there is a unique requirement;
- Write out a schedule of the proposed amendments and the rationale behind them;
- Have these challenged by people who know and understand the project and NEC;
- Draft clauses according to NEC drafting principles; and
- Have these challenged & improved by people who know and understand the project and NEC.
This topic was discussed in our webinar 'Common Drafting Mistakes when Amending NEC Contracts – A Non-Lawyer's Perspective with Jon Broome in April 2024. Click hereto view the webinar and presentation.
Footnote
1. Houghton E & Trebes B, The Z Factor: To what extent have Z clauses impacted on the NEC's success as a modern contract?, Paper given at NEC User's Annual Seminar, 11th April 2011
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.