Is NEC4 the way forward for standard construction contracts in Australia?

Authors: Holding Redlich partner Scott Alden & associate Victoria Gordon
Publication: Sourceable
Publication date: 08/07/19

Major project delivery around Australia has historically relied on the Australian Standard form of contracts for construction, in particular the AS4000 suite of contracts.
Introduced in the late 1990s, this suite of contracts is now almost two decades old.
Having regard to their vintage, there is a broad recognition and acceptance that these standard form contracts need to be updated, or alternatives need to be considered. This includes by the organisation that created them and licenses them being SAI Global.
Over the last four years there has in fact been a project, as a joint initiative between SAI Global and the Society of Construction Law to replace the outdated forms of contract AS2124 (1986 and 1992) and AS4000 (1997) with a new form of contract, AS110000: 2017. The development of this new form of contract ceased (although not permanently) in 2018 despite it being almost complete and ready for publication.
The lack of a new and updated standard coupled with a significant shift away from traditional adversarial forms of contract (such as the AS4000 suite) and towards a more collaborative form of contract based firmly on relationship principles and philosophies, has prompted government, industry and advisors to look elsewhere for a contract that meets best practice, current global trends on project delivery.
The NEC4 suite from the UK Institution of Civil Engineers (ICE) is one potential alternative. The NEC suite was first published in 1993 and endorsed by the Governments of UK, South Africa and Hong Kong. It is currently been used in Main Roads construction in Western Australia and had successfully delivered the A$260m Mt Mercer wind farm in WA.

Features of the NEC4 suite

The NEC4 suite includes a range of options that parties may choose from, allowing it to be easily adapted to a variety of projects without the need for significant amendments.
Key features and options of the NEC4 suite include:

• six alternative remuneration models (Priced Contract with Activity Schedule, Priced Contract with Bill of Quantities, Target Contract with Activity Schedule, Target Contract with Bill of Quantities, Cost Reimbursable Contract, Management Contract)
• optionality around the degree of design responsibility
• express provisions requiring the parties to perform the contract collaboratively and cooperatively and an option for further multiparty collaboration with subcontractors and suppliers
• provisions that mandate and incentivise the preparation and acceptance of regular updates of the programme (including an obligation on the parties to keep an ‘early warning’ register)
• an option to support the use of Building Information Modelling (BIM)
• an option for incentive payments to assist the parties to achieve Key Performance Indicators (KPIs)
• an option for Early Contractor Involvement (ECI)
• a mechanism in the subcontracts which allows a dispute to be joined to a related dispute under the main contract.

One argument that is raised against the use of the NEC4 suite is that they are not ‘Australianised’. However, many amendments that would need to be made to the NEC4 suite to reflect Australian legislation are often required for Australian Standard contracts in any case, to reflect new laws since those contracts were first published (for example, SOPA and WHS legislation).

Conclusion

The optionality of the NEC4 suite combined with the focus on collaborative and relationship contracting principles that are embedded within the suite, may see the NEC4 suite being increasingly used as a preferred alternative to the standard construction contracts that are currently being used in Australia.

* This piece was originally published in Sourceable www.sourceable.net

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