On 26 January 2021, NEC published a new suite of Facilities Management Contracts (FM contracts) with the support of the Institute of Workplace and Facilities Management (IWFM).

The suite includes four contracts, six user guides and two flow charts; these are designed for use in all types of facilities management procurement and delivery strategies.

A "hard copy" of the contract, together with the user guides, will be available from June 2021. NEC and IWFM are also collaborating to produce a series of practice notes and provide guidance on important themes in the FM industry and how the contract can be adjusted and reflected in the FM contract.

The FM contracts

The new contracts include:

  • The Facilities Management Contract (FMC) - for use where a client is appointing a service provider for a period of time to manage and provide any type of FM services.
  • The Facilities Management Subcontract (FMS) - for use where a service provider has been appointed under the NEC4 FMC and is appointing a subcontractor.
  • The Facilities Management Short Contract (FMSC) – for use where a client is appointing a service provider for a period of time to manage and provide any type of FM service that does not require sophisticated management techniques, comprises straightforward services and imposes low risk.
  • The Facilities Management Short Subcontract(FMSS) - for use where a service provider has been appointed under the NEC4 FMSC and is appointing a subcontractor.


Key features

Key features include:

  • Stimulating good management of the relationship between the parties to the contract.
  • Applicable to a wide range of commercial situations, for a wide variety of work and in any location throughout the world.
  • Clarity, simplicity and written in plain English, using language and a structure that is easily understood.


Pricing options

There are three main pricing options:

  • Priced contract with a priced list, which allows for a combination of lump sum and remeasurement of rated items. This allows flexibility in how the price list is created allowing parties to determine the level of detail and way in which the service provider is to be paid.
  • Target contract with a price list, which is a target cost on a lump sum remeasureable basis. The service provider is paid for the services provided on a cost reimbursable basis (defined cost plus fee). At the dates stated in the contract the costs incurred are compared to the target cost to assess the service provider's financial performance. Any savings made or overspend incurred are then shared between the parties on a pre-agreed percentage split. This incentivises performance and encourages collaboration between the parties.
  • Cost reimbursable, where the service provider is paid for the service provided on a cost reimbursable basis, providing flexibility for the client to develop and change the service required throughout the service period.


The conditions

The FM contracts will have a familiar feel to NEC users. The modular structure is retained, as is the requirement to act "in the spirit of mutual trust and cooperation".

The key new procedure is the "service order" which is intended to reflect how work such as reactive maintenance is instructed in practice. The service order is the order given by the client to the service provider to undertake work. The procedure allows a client to "call off" work identified in the service order requirements as and when required. The service order requirements also details the processes to be followed and constraints that apply. This allows the client to create a service order process that is specific to the service being undertaken and their own requirements.

The ability to measure performance and apply sanctions for non-performance is also a core element driving service delivery, so the suite includes a performance table, setting out targets and detailing how performance is assessed, reported and rewarded.

Secondary options

Secondary options include, among other things:

  • the right of the service provider to identify opportunities to change the scope which, while it may increase the price of the service, would reduce the cost of an asset over its whole life. Through the procedures in this option, both parties can share in the saving created.
  • The ability to be used for contracts under which the service provider is required to undertake design as part of the service. This option deals with the issue and acceptance of the design, the standard of care, ownership and use and the requirement for professional indemnity insurance.
  • The ability to extend the service period.
  • The client's right to terminate the service provider's obligations to provide the service in certain circumstances.
  • Building Information Modelling (BIM)


Contracts aligned to FM sector practices

The FM sector is extensive. The NEC Term Service Contract form of contract was not written for FM purposes so required considerable adaptation to bring the contract into line with FM contracting practice. The new FM Contracts offer an approach much more aligned to FM concepts and practice. It will be interesting to see whether the FM industry embraces this suite of contracts and how these contracts will be adapted and implemented in practice.

Contributors

Louise Shiels

Head of Dispute Resolution and Risk & Partner

Stuart Murray

Partner