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NEC4 Establishing a Procurement and Contract Strategy
1
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The convention of using italics for terms which are identified in Contract Data and capital
initials for defined terms has been used in this user guide
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That is the Contractor, the
Consultant, the Supplier, the Subcontractor or the Dispute Resolver as the case may be
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1
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Key to the successful use of NEC is users adopting the desired
cultural transition
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NEC has matured from being a revolutionary contract in the early 1990s with some interest
and use from forward thinking organisations seeking change in how they go about engaging
suppliers in a non-adversarial manner
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NEC3 was published in
2005 as a result of feedback from industry on many years of successful use and was the first
time that the complete integrated set of NEC documents was launched at the same time
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In NEC4, as a result of further feedback from industry, the suite has been expanded to
include a Design Build and Operate Contract (DBOC), additional subcontracts and new
options to better support the use of design and build contracting
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The
guidance notes have also been updated and improved to provide a complete set across NEC
contracts
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The intention is that use of NEC will lead more frequently to achievement of Clients’
objectives in terms of its ultimate quality, performance, cost and time aspects
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NEC is intended for global application and is effectively drafted on a neutral
jurisdiction basis to achieve this goal
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3 OBJECTIVES
BJECTIVES
The objectives for the design of the NEC were to make improvements to more traditional
forms of contract under three main headings
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For example, the Engineering
and Construction Contract (ECC) can be used:
• for engineering and construction work containing any or all of the traditional disciplines
such as civil, electrical, mechanical and building work,
• whether the Contractor has full design responsibility, some design responsibility or no
design responsibility,
• to provide all the current options for types of contract such as competitive tender (where
the Contractor is committed to its offered prices), target contracts, cost reimbursable
contracts and management contracts and
• in any domestic or international jurisdiction
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As
far as possible, they use only words which are in common use
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It also makes them easier to translate into other languages
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As further aids to simplicity and clarity, a great deal of effort has been taken to reduce
the content of the contract conditions to the minimum needed
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• The number of clauses used and the amount of text in each are less than in many
standard forms
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• Sentences have been subdivided using bullet points to make them easier to understand
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• There is no cross-referencing between clauses
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This is because it uses words and grammar that,
although common in everyday speech and writing, are not usually found in formal contract
documents or other legal papers
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More importantly, the actions by the parties which follow from
use of the contracts are defined precisely so that there should be few disputes about who is
to do what and how
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One of the benefits of this approach
to drafting has been that opportunities could be taken for simplifying the structure of the
contract as well as ensuring that the procedures were not open-ended or conflicting
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The procedure for dealing with these events is mainly
set out in the core clauses and includes review of both the cost and time implications
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A fundamental objective of NEC contracts is that its use should minimise the incidence of
disputes
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3) Stimulus to good management
This is perhaps the most important characteristic of NEC
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This aspect of NEC is founded upon the proposition that
foresighted, co-operative management of the interactions between the parties can reduce
the risks inherent in construction and engineering works, services and supply
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With NEC, it is now possible to build
arrangements for the different parties to contribute to the management of a project upon
improved practices and to motivate all parties, by means of the particular NEC contract, to
apply such practices to their work
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It also enables

them to achieve their own objectives more consistently than has been possible using more
traditional forms of contract
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It should also lead to an increased likelihood of achieving a good commercial
outcome for all
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A secondary but important theme is that people will be motivated to play their part in
collaborative management if it is in their commercial and professional interest to do so
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Inevitably on any construction or engineering project there will be uncertainty and risks
involved in carrying out the works, services or supply
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But they also help to reduce the likelihood of
those risks occurring and their subsequent impact, if they do occur, by the application of
collaborative foresight and risk reduction procedures
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A prominent example of the way that the procedures in NEC contracts are designed to
stimulate good management is the early warning procedure
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The parties are then required to meet, to seek mutually beneficial solutions to overcome
these problems, and to operate a formal Early Warning Register of notified events
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Compensation events are events which are at the risk of the Client, and which may lead to
the payment to the supplier changing or the Completion Date, i
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the date by which they
are required to complete the works, being extended
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The contract is designed to ensure that the supplier is unaffected financially by the choice
that the Project Manager or equivalent makes
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Where, as is often the case, alternative ways of dealing with the problem are possible, the
supplier prepares quotations for different ways of tackling the problem
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Criteria for such selection can include lowest cost, least delay or best finished quality, or any
combination of these
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The supplier carries the potential risk or reward if his forecast
of the cost impact is wrong, and the Client has a firm commitment
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In main Options C and D the quotation
is used to vary the target, and so the Parties will share the risk and reward under the share
mechanism
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An important by-product is that few issues relating to valuation of the work or extensions of
time are left to be settled after the event
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In designing the NEC, the motivation of each party in each
action it is to take has been considered against good management criteria
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A typical aspect of this characteristic, using the ECC as an example, is the way in which NEC
makes use of the programme for design, construction and installation
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The use of the programme is defined in some detail and in such a way that, again, the
supplier is motivated to keep it up-to-date and realistic
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