NEC vs JCT

15th November 2018

 NEC v JCT
Fergus Aitken BSc MRICS MAPM
YORbuild2 Programme Manager
East Riding of Yorkshire Council
‘Mr NEC’

Chris Bourne BSc (Hons) MRICS

YORbuild2 Framework Manager
Scarborough Borough Council
‘Mr JCT’
Opening remarks
 History
JCT NEC
Main contract used within the building The New Engineering Contact /
sector of the UK construction industry Engineering and Construction Contract
since 1931 was first published in 1991
Latest editions were published in 2016. Now in its 4th edition published June 2017
Over 60 different versions
JCT claims pre-eminence due to its NEC is the modern kid on the block (but
longevity emerged from previous ICE conditions)
Traditional’ (or ‘master and servant’) style Aims to create a collaborative/partnering
of contract ethos, with a proactive approach
Building industry are used to JCT as it’s NEC3 is now all but mandated for public
been around for a while and the building sector projects (following the Cabinet
industry’s set up complements its use, but Office’s endorsement in 2008).
NEC is now well established Civils sector are used to NEC
 National Construction Contracts and
Law Survey 2015

This year (2018) JCT has shown a marked growth, and is now at levels not seen since 2011. NEC,
which had been growing year on year, has contracted and has returned to the levels that we saw in
2011. Use of bespoke contracts has fallen from 11% to 5%.
 Main works contracts
JCT (2016) NEC3 (2013)
• Standard Building Contract - 3 NEC3/NEC4 Engineering and
versions Construction Contract
• Intermediate Building Contract - 2
versions (1 with Contractor design)
• Major Project Construction contract
• Design and Build Contract
• Management building Contract
• Construction Management Contract
• Constructing Excellence Contract

Minor Works building Contract - 2 NEC3/NEC4 Engineering and

versions (1 with Contractor design) Construction Short Contract

= 12 works contracts = 2 works contracts

 Contract structure
JCT (2016) NEC3 (2013)
Articles of Agreement Core clauses
Recitals Main option clauses A-F
Articles Secondary option clauses
Contract particulars Schedule/Shorter schedule of cost
components
Conditions Contract Data
Schedules
 Generally
JCT (2016)
• Use traditional contract terminology
(legalese),
• As contracts tested by legal challenges
over a considerable period, it’s argued
that JCT contracts provide greater
certainty of legal meaning than NEC
contracts.
• However they are very detailed,
contain lengthy sentences, lots of
defined terms, lots of cross referencing
& can be difficult to understand
• Have limited details for processes with
timetables to manage issues.
NEC3
• Contracts are intended to provide
improvement/ dispute avoidance
through three main aspects –
Flexibility – cover building and
civils/ pick and mix approach
Clarity and simplicity – use of
ordinary language, no cross
references, avoid subjective terms
Stimulus to good management –
collaborative approach, PM regime,
proactive processes to agree
variations and claims as work
progresses
 Project Management/ Contract Administration
JCT NEC
Are administered by an Architect / Include roles for:
Contract Administrator. There is also a
Quantity Surveyor to carry out valuations • a Project Manager to manage and
(including variations and loss and administer the contract and
expenses matters).

• A clerk of works may also be appointed • a Supervisor to check that work is

to act as an inspector. carried out in accordance with the Works
Information.

The Architect / Contract Administrator NEC contracts are driven by a set of

role generally doesn’t involve the pro processes that involve the parties working
active process driven approach required together to resolve issues as they occur.
for the Project Manager to NEC
contracts.
 Project Management/ Contract Administration
JCT
Select a CA with the skill to tightly control
the account throughout the project -
goodwill can disappear when the parties
have unresolved claims for time and
money (arising from relevant events),
which are difficult to unravel, and there is
pressure to close the account and switch
attention to other projects
NEC
It’s important that the Project Manager
has appropriate qualities, project
management skills and understanding of
NEC contracts to pro actively manage the
contract and to foster collaborative
working with the contractor.
So choose your project manager
carefully, as the contract depends on
solid project management. PM’s often
administer NEC contracts in a similar way
to JCT contracts which is best avoided.
Management input

= Similar
management
input overall
 Collaboration/ Partnering
JCT
“The Parties shall work with each other &
with other project team members in a co-
operative and collaborative manner, in
good faith & in a spirit of trust & respect.
To that end each shall support
collaborative behaviour & address
behaviour which is not collaborative”
(Schedule 8, Supplemental Provisions,
item 1)
This is included as an option – the
default is that it applies, but it can be
omitted.
• the contract is limited in terms of
processes that involve a collaborative
approach to manage issues.
NEC
“The Employer, the Contractor, the Project
Manager and the Supervisor shall act as
stated in this contract and in a spirit of
mutual trust and co-operation.”
(Clause 10.1 – Core Clause)
This is included as the first of the core
clauses reflecting the importance of such
relationships as an integral aspect of the
processes for managing NEC contracts,
e.g. in relation to early warnings and
compensation events.
 Pricing
JCT
• With quantities (Lump sum contract)
• Employer provides drawings and bills
of quantities specifying quantity and
quality of work
• Without Quantities (Lump sum contract)
• Employer provides drawings together
with a description of works and either
a specification or work schedules
• With Approximate Quantities (Re-
measurable)
• Employer provides drawings and
approximate bills of quantities.
• The JCT Contract contains provisional sums
NEC
Option A – Priced Contract With Activity
Schedule
Option B – Priced Contract With Bill of
Quantities
Option C – Target Contract With Activity
Schedule
Option D – Target Contract With Bill of
Quantities
Option E – Cost Reimbursable Contract
Option F – Management Contract
The NEC Contract doesn’t include provisional
sums
 Payment
JCT (2016)
• The JCT contract payment section is
clear, is all in one section (clause 4)
and easy to follow. Listed items –
permits payment for materials off site
• Payments are generally calculated by
QS based upon assessment of work
done plus materials, following an
application made by the Contractor.
NEC
• In the NEC contract it is located in three
different locations – clause 5, Y(UK)2
and Contract Data Part 1.
• Option A - Activity schedule - items
need to be 100% complete before
payment is made. Encourages
Contractor to stick to programme
• Option B – BofQ – payment is based on
a remeasure + proportions of lump
sums
• Options C-F payment is based upon
forecast of defined cost to be paid
before next assessment + Fee
Key bits
 Key requirements
Time These areas are key:

• Cost - timely agreement of the value of

changes
+Risk • Time - how it deals with the programme
• Quality – inspection arrangements and
defects resolution
• Risk – how these are identified and resolved
Cost Quality

16
 Comparison
• The following slides compare

• the JCT Standard Building Contract (SBC) without

quantities 2016 with

• NEC3 Engineering and Construction Contract 2013 with

Main Option A

• as these are understood the most widely used (JCT D&B

being a close second)
 Cost - variations/ claims generally
JCT (2016)
Variations are valued by:
• agreement between the Employer
and the Contactor,
• quotations accepted by the Architect/
CA,
• or by the QS using the Valuation Rules
on the basis of:
• relevant rates and prices in the
contract for work of a similar
character
• or in the absence of such at fair
rates and prices
• or Dayworks.
NEC3
Assessment of change is radically
different in NEC
• Based upon the pre-assessment of
change based on forecast costs not
tendered rates and prices
• A Contractor should be neither better
nor worse off for an Employer-driven
change event occurring
• Any ‘extension of time’ & associated
costs must be included in each CE
• However tendered rates and prices
can be used if parties agree
 Cost - variations/ claims generally
JCT (2016)
Loss and expense payment is allowed where there is
delay in providing possession of the site to the
contractor or where progress is affected by “Relevant
Matters.”
JCT provides a number of subjective tests for
determining if certain events give grounds for
recompense to the contractor. An example of this is
weather, JCT refers to ‘exceptional adverse weather
conditions, which is subjective
In JCT the contractor is only obliged to claim for
more time and money after the risk event has
occurred, which puts the employer in an extremely
difficult management position
NEC3
Dealt with under the compensation events
procedure and payment is assessed on the basis of
the effect on forecast / actual cost (at open market /
competitively prices or rates in the Contract Data as
relevant) plus a tendered fee percentage (for profit
and any costs not covered elsewhere). Any loss and
expense is captured in compensation events
NEC generally relies on more objective tests e.g. NEC
uses a worse than 1 in 10 year approach to weather,
which is objective.
Compensation events are allowed for a range of
issues defined in the contract including a catch all for
“a breach of contract by the Employer which is not
one of the compensation events in this contract.”
There’s no other provision for the contractor to
recover payment in respect of such issues.
 Cost - pros
JCT (2016)
The JCT provisions to value variations may be
less onerous in terms of input than
compensation events procedure under NEC
contracts, for example where this is on the
basis of existing rates and prices
NEC3
As variations shouldn’t occur because of the
fault of the contractor, the effect on forecast /
actual cost is a fairer basis for valuation (rates
for similar work may be skewed to benefit
either the contractor or the Employer
depending on the tendering contractor’s
pricing strategy / cash-flow requirements).
NEC includes a defined process with a clear
timetable (extendable by agreement) for
notifying, evaluating and implementing
compensation events. Compensation events
are evaluated in terms of both cost and time
(delays to the Completion Date and key
dates);
 Cost – pros
NEC3 (2013)
Both the contractor and the PM have responsibilities to notify and respond to
relevant compensation events, for example:

• Time barring - if the contractor fails to notify an existing or expected CE within 8

weeks of becoming aware of it, he is not entitled to claim for the event unless the
PM should have notified the contractor of the event, but failed to do so.

• Deemed acceptance
• If the PM does not respond to a notification of an event notified by the
contractor in accordance with the required timetable then the event is
treated as a CE and the contractor submits a quotation.

• If the PM fails to respond to a quotation by the contractor in accordance with

the required timetable (except for a proposed change / instruction) then
quotation is deemed to be accepted.
 Cost - cons
JCT (2016)
The inclusion of several pricing options for variations may result in disagreements as to which
option applies.

Claims for extensions of the contract period are notified and evaluated under separate
conditions of contract to those for cost; there’s no specific requirement to use the contractor’s
programme to evaluate extensions.

The provisions for “loss and expense” payments are without prejudice to any other rights and
remedies that the contractor may possess.

Except when the quotation procedure is used the absence of a clear timetable for evaluating all
variations and claims (for both cost and time concurrently) in real time increases the potential
for issues to build up during the contract and increase uncertainty as to the final outcome.
 Programme/ Delays
JCT (2016)
The contractor is only required to submit
a programme at the start of the contract
and provide a revised programme if an
extension is granted (although the
preliminaries may require the contractor
to update the programme to show
progress).
The contract doesn’t require the
programme to be accepted by the
Architect / CA, or to be used for
monitoring progress, or assessing
extensions.
NEC3
Include detailed requirements for
programmes (including resources for each
operation).
Revised programmes, showing actual
progress for each operation and its effects
on the timing of remaining work are
required including at specified intervals
and in relation to compensation events;
each programme is subject to acceptance
by the Project Manager.
 Programme/ Delays
JCT (2016)
• The absence of a requirement for
an accepted detailed programme
updated to show actual progress, to
be used for evaluating delays and
extensions, increases the potential
for issues to build up through the
contract and increase uncertainty as
to the final outcome.
NEC3
• The programme is a key tool for
managing the contract; the accepted
programme is used to assess delays
and extensions to the contract in real
time under the compensation events
procedures.
The programme is often described as
the ‘beating heart’ of the contract.
 Practical Completion

JCT NEC3 (2013)

• JCT which relies upon a subjective • NEC identifies a state at completion

judgement of practical completion which is defined within the works
determined at the time. information

• JCT requires the issue of a non

completion certificate before LAD’s can
be withheld
 Quality/ Defects
JCT (2016) NEC3

• Defects after completion are to be • Defects after completion are to be

rectified within a reasonable time rectified within the defects correction
period, a specific time period

• With NEC, there is an obligation on

both contractor and supervisor to
notify each another of defects as soon
as they are aware of them, providing
a more open process for highlighting
and dealing with defects.

• This same obligation is not found in

JCT.
 Risk management
JCT
• Risk allocation is largely fixed
• In the JCT contract ground risk is with
the contractor. However, the NEC
contract uses the ICE foreseeability
test in relation to ground conditions.
• It is not uncommon for JCT contracts
to be extensively modified to transfer
risk
NEC3 (2013)
• Risk allocation can be better tailored
• Early warning is required if time, quality
or cost could be impaired. Failure to
notify an issue may adversely the affect
the valuation of a compensation event
arising from it in relation to the contractor
or Employer (depending on the party
failing to give notice).
• Both parties are required to list matters
to be included in Risk Register in Contract
Data
 Early warning
JCT (2016)
JCT contracts don’t include a proactive
early warning procedure (to pre-empt
problems) and generally rely on the
provisions in the contract to deal with
issues when they occur.
• The exception to this is the JCT
Construction Excellence contract which
contains some risk management
provisions.
NEC3
One of the stimuli to “good management”
under NEC is the early warning system.
The aim is to pre-empt potential problems
and mitigate their impact.
Early warning provisions involve the
maintenance of a risk register and place
obligations to notify each other if a
relevant issue occurs and to attend and
co-operate at a risk reduction meeting.
Failure to notify an issue may adversely
the affect the valuation of a compensation
event .
Summary pros and
cons
 Summary – JCT - pros

• Building industry is arguably better geared up for it

• Arguably provide greater certainty of legal meaning
• Some may prefer its specific contract structure
• More familiarity within the industry
 Summary – JCT - cons
• Contain legalese
• Are very detailed, contain lengthy sentences, lots of defined
terms, lots of cross referencing & can be difficult to understand
• Have limited details for processes with timetables to manage
issues.
• Contracts tend to get left in drawer
• Programme is not a binding contract document
• Late claims not time barred
• Rigid risk management procedures
 Summary – NEC - pros
• Endorsed for public sector by government
• Are flexible
• Claim to be clearer and simpler to understand
• Act as a stimulus to good management, potentially providing
greater certainty of outcome in terms of cost and time
• Contain good procedures for managing risk
• Encourage parties to work together
• Use objective tests (rather than subjective)
 Summary – NEC - cons
• Contract needs to sit on desk
• If not proactively managed, properly understood and
resourced from outset problems can arise
• Requires careful drafting (e.g. Works Information)
• Lack of industry awareness in some quarters (even now)
• Disputes often get resolved by Adjudication so findings remain
private
Summing up
 Contract choice
So which contract would you choose?:

1. Time – which contract is more likely to ensure the project is

finished on time
2. Cost – which contract will give better value/ more cost
certainty
3. Quality – which contract will give me a better product
4. Risk – which contract is better at dealing with risk

Both can be used on the YORbuild2 framework.

Q&A/ Close