NEC4 Amendments: What's new?

It has been nearly two years since NEC published the first set of amendments to the NEC4 suite of contracts. On 30 October 2020, a second set of amendments were published, taking account of recent legal developments and user and industry feedback. The key changes are set out below.

Delay Damages

NEC4 contracts which contain an option for delay damages have been amended to clarify that delay damages cease at termination. After termination, any further delay costs will form part of the general costs/damages due as a result of the termination of the Contractor/Supplier's obligation to provide goods, works or services. The previous NEC4 wording had provided that delay damages would accrue until Completion or the taking over of the works.

The new wording addresses the impact of the recent Court of Appeal decision in Triple Point Technology Inc v PTT Public Company Limited [2019] EWCA Civ 230. In that case, a clause which was similar to the original NEC4 delay damages clause was held not to apply on termination with the result that delay damages which had accrued up to the point of termination could not be claimed and the Client could only claim general unliquidated damages. This case was recently appealed to the UK Supreme Court and the decision is awaited.

Contractor's liabilities and use of equipment, Plant and Materials

Clause 81.1 of the Term Service Contract (and Subcontract) and Design Build Operate Contract have been amended to confirm that the Contractor is liable for loss of, or damage to, any equipment provided to it by the Client. NEC have also simplified the provisions in these contracts which set out the Contractor's rights to use equipment, Plant and Materials and other materials provided by the Client.

Secondary Option X22 – Early Contractor involvement

Amendments have been made to Secondary Option X22 which is found in the Engineering and Construction Contract and the Alliance Contract. Option X22 permits a Contractor to be appointed at an early stage to input into the design process and innovate and eliminate risk in order to achieve better time and cost certainty. This provision has now been amended to provide greater flexibility in the development of a project in Stage One and to provide a more structured process for the Contractor's submissions and the Notice to Proceed to Stage Two. As part of the amendments, any changes required to the Access Dates, Key Dates and the Completion Date are to be agreed between the Project Manager and the Contractor along with any changes to the total of the Prices.

Secondary Option Y(UK1) – Project Bank Account

Amendments have been made to the Project Bank Account Option Y(UK)1 in response to user feedback and to reflect best practice. The key changes are summarised below:

• The Client has the option to decide whether the Project Bank Account is held by the Contractor or jointly by the Contractor and the Client. This will allow the Client to decide how much day to day involvement it has in the administration of the Project Bank Account.
• The provisions have been updated to reflect electronic banking procedures.
• The Authorisation document has been replaced with a Payment Schedule. The Payment Schedule is prepared by the Contractor and lists the payments to be made to the Contractor and Named Suppliers from the Project Bank Account. This is provided to the project bank.
• The Contractor is now also required to prepare and continually update a Project Bank Account Tracker, which contains a register of all payments made to and from the Project Bank Account, stating the date each payment was made.

Secondary Option Y(UK)2 – The Housing Grants, Construction and Regeneration Act 1996

Secondary Option Y(UK2) has been amended in those NEC4 contracts which link the final date for payment with the submission of an invoice. This includes Professional Service Contracts, Term Service Contracts and the Design Build and Operate Contract. The amendment changes the due date to the later of: 1) the date of receipt of an invoice by the party which is making payment; and 2) fourteen days from the assessment date. The final date for payment is now a fixed period of time from the due date. These amendments do not change the overall timescales for payments.

This amendment reflects the decision in Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC) in which the court made an obiter comment (i.e. one not necessary for the decision) that final dates for payment which were tied to an event or mechanism such as an invoice would not be compliant with the Housing Grants, Construction and Regeneration Act 1996 (as amended).

A full schedule of amendments for each of its contracts can be found on the NEC website.