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Three Areas of Untapped Potential in NEC4 Contracts

Contractors and consultants, especially those working within the public sector, will often find themselves working under the NEC4 form of contract.

Three Areas of Untapped Potential in NEC4 Contracts

Contractors and consultants, especially those working within the public sector, will often find themselves working under the NEC4 form of contract. However, there still remains a wealth of untapped potential within this suite of contracts. Dr Stuart Kings, NEC4 drafter, co-author of NEC4 Practical Solutions and consultant here at Sypro discussed three options within the suite that could provide huge amounts of added benefit for clients and delivery partners alike.

NEC4 was introduced in 2017 to replace the then 12-year-old NEC3 suite, making a number of key changes. But three years on, some options under the contract are still underutilised despite having the facility to enable things such as improved sustainability practices or effective collaboration.

Option X12 – Multiparty Collaboration

This option has been around for years, previously existing under the name of ‘Partnering’ in NEC3, but it remains an under-used part of the contract process. Its aim is to promote the collaboration between parties working on the same project or programme who are not parties to the same construction contract.

Everyone talks about collaboration across the construction industry, but we don’t seem to embed this into contracts as much as we could. What needs to happen in order to truly achieve this coveted collaboration is to formalise the process. Within the sector, those that foster a collaborative approach do still have their own priorities in mind, meaning that not everything may align with other parties.

One consideration is that various parties often get involved in a project at different points. For example, practical delivery partners may come in towards the end of a designer’s tenure. This being said, a truly collaborative client will lead on how they wish delivery partners to work together throughout the project. Option X12 allows the additional facility to embed incentives into the contract as well, providing the all-important direction on what is most important to the client, be this SME engagement, health and safety measures or more.

It may be that the procurement process has an impact in the use of Option X12 across the industry. If a project is procured via a framework agreement, the client will have already spent time setting that up – and therefore have set KPIs relating to that agreement. With clients often being focussed on the budget and programme, the benefit of setting additional KPIs may not always be seen, which is where the role of NEC consultants can be incredibly valuable.

With Option X12, it is important to note that you don’t necessarily have to identify KPIs in the contract upfront, which is where the potential in this option becomes even more powerful. You can opt to have the option engaged but sitting dormant until the appropriate point once the project is underway. It can also come in incredibly useful when contracts may need to change. COVID-19 has been a prime example of this, with the use of Option X12 giving the capability to update KPIs according to emergency programme changes.

Option X21 – Whole Life Costing

This option was a new addition to NEC4 and is an area that is of increasing importance to all throughout the industry – clients and suppliers alike. It allows the contractor to propose a change to the Scope that would reduce the cost of operating and maintaining an asset over its whole life.

A big focus for sustainability across the industry at present is BREEAM accreditation, which ticks a lot of boxes when it comes to whole life cost. However, from a client perspective, Option X21 has the potential to be incredibly powerful in moving towards achieving the overall goal of carbon neutrality in the UK.

Only a few years ago, especially on a local council level, carbon offsetting or other such similar measures did not always get due consideration because of increased costs putting further pressures on budgets. Especially in the last year or two, many of these local authorities have declared their own climate emergencies and have found ways to adapt practices to ensure that such measures can effectively be incorporated into projects.

For example, we are seeing more often that these authorities will draw on separate funding pots for sustainability measures. Using education projects as an example, this ensures that the cost per pupil for a scheme isn’t negatively impacted for the client when it comes to the build programme cost.

Whole life costing is a complicated matter, and we have to consider that the usual calculation of ‘whole life cost’ is based on a 60-year lifespan, typically coming in at around five times that of the capital expenditure. However, not every building will be the same and we can expect that facilities in certain sectors like healthcare or manufacturing will see an even greater ‘whole life cost’.

Like with Option X12, employing this option is worth including within contracts to allow the consideration of different products or alternative ways of working to reduce the overall whole life cost of a scheme – benefitting not just the client in terms of budget, but the local community and wider environment in terms of reducing carbon.

Option X22 – Early Contractor Involvement

Option X22 was new to the NEC4 suite of contracts in 2017 and allowed 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. The provision was amended in October 2020 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 process to Stage Two.

As part of the amendments, any changes required to the access dates, Key Dates and Completion Date are to be agreed between the Project Manager and the Contractor along with any changes to the total of Prices.

There is no doubt that early contractor involvement can greatly aid the commercials of a scheme. With the Contractoron board from very early on in a project, this allows the whole project team input on the pre-construction phase. Contractors can bring their buildability expertise to ensure that designs are commercially viable with the Client’sbudgets from the outset. This early-stage collaboration will feed into a more harmonious construction phase for a project and could see other benefits such as fewer project delays thanks to alleviating more potential pitfalls ahead of starting on site.

There are always huge benefits to early contractor involvement, but the minefield of public sector procurement legislation makes many public sector clients stick to what they know will get them safely through procurement. The ability to map out early contractor involvement via Option X22 can only help.

In conclusion, a multitude of major infrastructure projects have been procured under NEC4 over recent years, and with a construction and economic recovery on the horizon we know many more are to come.

If we open up conversations with clients about how these options work and the flexibility they can bring, we will be able to ensure that they – and their delivery partners – understand the true potential that can be unleashed by NEC4 will be central moving forwards to helping the public sector get the most out of their contracts.

For more information, please visit https://www.sypro.co.uk/