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NEC Toolkit 2
NEC Toolkit 2
®NEC 2022
CONTENTS
It can be used to help understand what influences the decision for any of the
following and more:
The NEC suite of contracts has differing terms for the organisation providing the
works/services, etc., as well as for the role of administering the contract, this toolkit refers to
them as ‘the contracted provider’ and ‘the Client’s contract manager’.
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WHAT IS NEC
Play the Introduction
The NEC (New Engineering Contract) is an evolving family of
to NEC4 video
procurement contracts that were originally launched in the UK in 1993 and
developed as a modern-day alternative to traditional construction contracts.
The NEC is currently in its 4th edition (NEC4).
It is a contract built around proven best practice in project management and Play the Introduction
it engenders a collaborative approach to management and delivery.
to NEC4 FMC video
Find out more about the NEC family of contracts by clicking on the video thumbnails
Increased confidence of
Delivering better outcome
project outcomes
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Procurement processes and project goals can differ significantly from one
another, meaning there may be many variables that can impact on delivery,
commercials outcomes and resources.
The NEC promotes and enhances collaborative working and if used in this manner
helps achieve greater cost certainty, delivery to agreed timescales and
appropriate quality standards.
The NEC is intended to be used and referred to throughout the project lifecycle, from preparing
the business case to operation and maintenance of an asset. It incorporates robust real-time
approach to change management that allows parties to deal with change quickly, effectively and
in a collaborative manner, helping to avoid or reduce the impact on the overall cost and
programme.
NEC can also help save on legal fees. NEC4 provides a set of standard ready to use contracts
which are designed to work best when they have not been amended – although they do of
course provide the option for appropriate amendments to be made to suit specific circumstances
and/or requirements, such as country specific laws.
“The NEC is capable of being a common contract for the whole industry.”
“Public and private sector clients should begin to use the NEC, and phase out "bespoke" The NEC has received
documents” Government Endorsement by the
Government Construction Board,
“Use of the NEC by private sector clients should be strongly promoted by client and industry
bodies.”
Cabinet Office UK and the
Development Bureau, HKSAR
Government, further instilling
This allowed NEC to be adapted and adopted across all industries often
confidence in its use on public
becoming the contract of choice for both small, low risk to large and
sector projects.
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NEC BEST PRACTICE
NEC4 contracts:
Provide clear Allow to forecast the
documentation and Promotes active Ensure an
adequate and fair real effect of any
outline of roles, management
compensation change on time and
responsibilities and cost
processes model
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WHY CHOOSE NEC
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GUIDANCE - BOARD OF DIRECTORS
Confidence in the proposed Certainty of outcome
contract outcomes
NEC contracts have been
Governance process The contract restricts changes
used since 1993 with users to time and price to a set of
reporting positive The Client appoints people specific grounds and clearly
experience to manage the contract and defined processes – there are
monitor performance - no provisions for global
Governmental approval of controlling cost, time and claims of additional cost
the use of these contracts quality - on its behalf and/or extension of time
has been given in UK, Hong
Kong and South Africa The Client’s contract There are strict change and
manager has the authority risk management procedures
Many clients who have to instruct a change to the with clear timescales for
adopted NEC contracts use Scope where necessary, e.g. action and sanctions for
them repeatedly for their if the Client’s requirements failures to act
work change
If there is an entitlement to
A range of digital contract Except where the conditions change the price or
management systems exist allow, the contract cannot programme, it is
which support the contract be changed without written implemented at the time of
administration and provide agreement of both Parties the event, giving the Parties
accessibility and visibility of knowledge of cost outcome
the contract processes and projected completion of
work
GUIDANCE - BOARD OF DIRECTORS (continued)
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GUIDANCE - FINANCE DIRECTOR
Reporting and integration
Financial controls
The contract requires the
The contract makes available a
contracted provider and the
wide range of commercial,
pricing and risk options to suit Client’s contract manager to
prepare regular updates of the The Client’s contract manager
all circumstances, from lump provides regular reports as
forecast outturn cost in
sum to cost reimbursable prescribed by the Client in the
consultation with each other on
The contract specifies a list of cost reimbursable and target Scope of the contract between
The liabilities of the Parties and them
events which can give rise to a based contracts
the types of insurances required
change in the cost and timing of to cover these liabilities are A value engineering clause has
The Client specifies its
the work stated in the contract been added to the unabridged
requirements and standards for
Changes to the cost and timing financial reporting by the contracts which shares the
A Project Bank Account option is benefits of any accepted
of the work are assessed at the contracted provider within the
available for UK contracts, proposals
time of a specified event scope, this enables integration
allowing for faster payment
through a process designed to with the Client’s systems
whilst also providing security of Target contracts contain a
encourage the agreement of the payment for the supply chain mechanism for sharing financial
effects of the change, with the gains as well as over spends
aim of reducing the chance of Open book accounting provides against the final amended
disputes transparency and helps forecast target price
as well as authenticate cost
when the cost reimbursable and
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target options are used
GUIDANCE
GUIDANCE - LEGAL
- LEGAL COUNSEL
COUNSEL
Confidence in legal outcome Risk management Liabilities
The NEC has been in use since 1993 by Risks carried by the Client are clearly The Parties liabilities, including those for
repeat clients. Its adoption was identified under core clause 6 as damage or injury and the corresponding
recommended by Sir Michael Latham compensation events. There is a clear allocation of costs, are clearly set out in
and it has been endorsed by and strict process for determining the core clause 8 of the contract
Governments effect on both time and cost should an Liability for third party risks are allocated
event occur in the contract under core clauses 2, 6, 8
There have been only a limited number A mandatory early warning procedure and additionally through the inclusion of
of legal cases referred to the Courts with requires the early identification of all secondary option Y(UK)3.
no significant adverse findings risks to time, cost and quality, followed Contract includes options for requiring
by a review of the options for avoiding or the contractor to provide a performance
Clear dispute escalation and resolution
reducing the effects, recording the bond or ultimate holding company
processes and options involving Senior
actions which should be taken and by guarantee
Representatives of the Parties,
whom; the contract manager facilitates
adjudication or a dispute board can be Option for undertakings to others
the process and takes the final decision
followed by either arbitration or a Court (warranties)
process Client requirements for managing risks,
including health and safety and the Client states any limits to the liability of
Country specific Secondary Options are protection of data are stated in the Scope the contractor
available for inclusion with provisions Procedures for termination and
Contract procedures oblige co-operation
which incorporate legislative consequent liabilities stated in the
and encourage the agreement of change,
requirements contract
aiming to reduce the chance of disputes
Contract manager cannot relieve
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Contractor of its responsibilities
GUIDANCE – PROCUREMENT/COMMERCIAL DIRECTOR
Procurement options
A wide range of contracts to suit all types of
work and contracting arrangements including
alliancing, management contracting, design
build and operate, as well as more traditional Secondary Options provide great flexibility
forms available in long and short versions to select appropriate provisions to meet
procurement requirements, allocate risk,
Different pricing options provided to allow introduce sectional completion, incorporate
the selection of preferred pricing methods an information model (BIM) among other
and risk allocation including, lump sum needs
contracts, measured contracts, target
contracts (sharing potential cost Option for early contractor involvement –
savings/overrun), cost reimbursable contracts before design finalised - to work with the
Client in completing design, assessing risks
The contract includes an option for and incorporating buildability, etc.
identifying Conditions and Key Dates which
enables the co-ordination of multiple Design responsibility is by default retained
contractors working on the same project to by the Client but can be transferred in full
work collaboratively or in part to the contracted provider
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GUIDANCE – PROCUREMENT/COMMERCIAL DIRECTOR (continued)
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GUIDANCE - OPERATIONS DIRECTOR
Change control
Contract management The contract lists the The early warning process
events which could give not only identifies
Active management of An early warning register The contracted provider is rise to a change in cost or potential risks to the
the contract by the is maintained to identify required to operate a completion of works and project but also what
Client’s contract manager and mitigate the risk to quality management services actions to take and by
allows the timely time, cost, quality and system which complies whom
agreement and disruption to the Clients with the Client’s Change in cost and/or
instruction of Tasks operational activities requirements completion established at The decision of the
the time of the event contract manager is final
A regularly updated The contract manager
programme/plan shows subject only to the
controls the acceptance Some of the contracts
future work and forecast dispute resolution
of subcontractors and key include acceleration
dates to meet contract process
people provisions.
requirements
The procedures
The change event process
allows continuous encourage collaboration
updating of forecast and the agreement of
outturn cost and time to change, aiming to reduce
complete work the chance of disputes
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GUIDANCE - OPERATIONS DIRECTOR (continued)
Staffing requirements
The contract can be The Client’s contract
managed by the Client using manager is responsible for
internal staff or contracted the successful completion of
out to a specialist the contract and will need to
organisation have the appropriate skills
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DIFFERENCES BETWEEN THE FULL AND
SHORT CONTRACTS
When to Use | Risk Level | Management
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CHOOSING THE RIGHT NEC CONTRACT
PSC & PSS
HIGH
ort
Sh
SSC
LOW
DRSC
Professional Service Engineering & Supply Contract Facilities Management Term Service Contract
Contract Construction Contract Contract
Used to for the Used to employ a
Used to employ a Used to employ a procurement of high Used by a Client to supplier for a period of
consultant to undertake contractor to undertake value goods and related appoint a Service time to manage and
any kind of professional any kind of construction service including design Provider for a period of provide a service
service work including design time to manage and
responsibility provide any type of
facilities management
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services.
Alliance Contract Design Build & Operate Framework Contract Dispute Resolution
Contract Service Contract
Used to employ a Used for the
contractor to undertake Used to for the appointment of one or Used for the
any kind of construction appointment of a more suppliers over a appointment of an
work including design contractor for design, set term to carry out adjudicator or dispute
responsibility construction or work or provide a avoidance board
modification and service or goods on an member to resolve
operation of assets ‘as instructed ’ basis disputes under NEC4
using NEC4 contracts. contracts
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NEC CONTRACT STRUCTURE
NEC can be used anywhere in the world. It is written in plain English, supporting ease of use and translation. Optional Y
Clauses allow specific provisions of local law to be incorporated into contracts. It is in use in the UK, Hong Kong, South
Africa, New Zealand, Australia, France, Germany, Ireland, the Netherlands, USA and the UAE. In 2019 NEC delivered the
venues and facilities for the Pan-American and Parapan Games in Peru.
NEC can also be used in any sector. The contract was first developed in the construction sector under the leadership of the
Institution of Civil Engineers, one of the world’s most respected professional bodies. Over the last three decades its use has
spread into sectors as diverse as oil & gas, infrastructure, facilities management, software, telecoms and pharmaceuticals.
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NEC COMMUNITY
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