NEC3 to NE4 webinar

Why we need to switch over now
Richard.Patterson@mottmac.com
NEC4 vs NEC3

Mott MacDonald 7 December 2020
Richard Patterson
BA MBA CEng FICE
Mott MacDonald NEC
Advisory Services
32Years with
Mott MacDonald
25Years with
The NEC
1 Year with NEC as
NEC Consultant

30/11/2021 Mott MacDonald | NEC Programme 3
ⓘ Start presenting to display the poll results on this slide.

30/11/2021 (c) Mott MacDonald 2020 | NEC001 4
Mott
MacDonald’s
NEC Bitesize
2021
https://mottmac.sha
repoint.com/legal/in
dustryforms/nec/Pa
ges/necsessions.as
px
Date Session Code
22 January 2021 NEC Contracts - An Introduction - Why are they so different? NEC0001
09 February 2021 NEC - Introduction to the NEC Professional Services Contract (PSC) - pre-award NEC0020
01 March 2021 NEC - Introduction to the NEC Professional Services Contract (PSC) - contract
management
NEC0021
30 March 2021 NEC Engineering and Construction Contract (ECC) - Contract strategy (main &
secondary options)
NEC0003
29 April 2021 NEC Engineering and Construction Contract (ECC) - Preparing the tender
documents; tender evaluation
NEC0004
24 May 2021 NEC Engineering and Construction Short Contract (ECSC) NEC00??
22 June 2021 NEC ECC and temporary works NEC0028
14 July 2021 NEC Contracts - Programmes under ECC and PSC NEC0005
17 August 2021 NEC Contracts - The Risk Register/Early Warning Register and risk allocation and
management
NEC0006
13 September 2021 NEC Engineering and Construction Contract (ECC) - compensation events NEC0007
13 October 2021 NEC Engineering and Construction Contract (ECC) -The Supervisor's roles and
responsibilities
NEC0008
08 November 2021 NEC Engineering and Construction Contract (ECC) - Defined Cost, the
Contractor's system and auditing
NEC0009
08 December 2021 NEC and BIM NEC0026

What industry do you work in?

Do you work for:
Client, Contractor, Subcontractor, Consultant

NEC experience:
Heard about it; used it; confident with it; give training on it

•16 June 2021 – NEC contacts – an introduction
•20 July 2021 - NEC contacts – programmes
•19 August 2021 - NEC contacts – early warning
•29 September 2021 - NEC contacts - compensation events
•27 October 2021 – NEC contacts - the Supervisor
•24 November 2021 – NEC contracts - NEC3 to NEC4- key
changes
•Mott MacDonald's NEC sessions for APM
•All 18:00 – 19:00

The following slides are developed from a version of those developed by
Richard Patterson of Mott MacDonald for NEC Contracts.
The original set was delivered as an NEC ECC4 webinar by Richard
Patterson and Rob Gerrard.
Recording available here:
https://youtu.be/hfjI5qDVJDE
The original ECC4 slides are also available on the NEC website.

See also Richard Patterson’s CLQ article:
‘NEC3 to NEC4 – evolution, not revolution; some
fixes and some good ideas!’
https://www.neccontract.com/About-
NEC/News-Media/NEC3-to-NEC4-evolution-
not-revolution-some-fix
NEC4 - key changes : (c) Mott McDonald
This presentation focuses on the main changes.
A second is available giving details of most of the other changes.
And full ‘track change’
comparison and
explanation detail here:

Flexibility
Clarity and simplicity
Stimulus to good management
Clarity, Flexibility, Good Management
NEC’s core principles

o plain, readable English
o short sentences and bullet points
o excellent structure
o free from references to specific laws
o minor secondary options to suit specific local
law - eg Y(UK)2, Y(NZ)2
o so easy to translate, if required
You can read it
NEC Clarity

Flexibility as you need it
NEC
• any aspects of any project, any service
• and supply
• ‘complex’ or ‘simple’
• any sector
• any procurement strategy
• any level of ‘Contractor’ design
• range of payment options
• clear and flexible risk allocation
What?
How?
• anywhere in the world Where?

ECC
Engineering and Construction Contract
TSC
Term Service Contract
ECSC
Engineering and Construction
Short Contract
TSSC
Term Service Short Contract
PSC
Prof’l
Services
Contract
SC & SSC
Supply Contract & Supply Short Contract
design construction operation
business
case
ECS
Subcontract
ECSS
Short Subcontract
Framework Contract
Adjudicator’s Contract
Supply
Low
High
Project
Complexity
PSSC
Prof’l
Services
Short
Contract
Family of Contracts
NEC3

DBOC
Design Build and Operate Contract
PSSC
Prof’l
Services
Subcontract
design construction operation
business
case
Dispute Resolution Services Contract
NEC4 new members
30/11/2021 15
Low
High
Project
Complexity
Alliance Contract TSSC
Term Service
Subcontract
FMC
Facilities
Management
Contract
(Feb
2021)
FMSC
Facilities
Management
Short
Contract
(Feb
2021)

Flexibility
The ECC4
A B C D E F
Z
1 - 9
W2
core clauses
payment option
dispute resolution option
secondary options
jurisdiction-specific options
additional conditions
C
W1 W3
W2
X1
X2
X3
X4
X5
X6
X7
X8
X9
X10
X11
X12
X13
X14
X15
X16
X17
X18
X20
X21
X22
X14
X14
X7
Y(UK)3
Y(UK)1 Y(UK)2
Y(UK)2
X10

– and good for collaboration
Stimulus to good management
Communications
Accepted
Programme
Compensation
events
Early warning

Compensation events
(Almost) all in
one place
Assess time and
cost for all
Assess forecast
now – not ‘wait
and see’
Based on ‘real’
effect of event
Clear
timebound
process for
assessment

RT_C
Read the _ contract
10.1 The Parties, the Project Manager and the Supervisor shall act as stated in
this contract.
10.2 The Parties, the Project Manager and the Supervisor act in a spirit of
mutual trust and co-operation.
DWISIT_C
_TalTEO
Do what it says in the _
contract
_ talk (and listen) to
each other

Key Changes
NEC 4
New and
changed
options
Language
Detail
1-9
1
2
3
5
6
4

NEC4 - key changes : (c) Mott MacDonald
New and
changed
ECC
options
W1 & W2 – Seniors Reps.
first
Has to be optional in W2
W3 – Dispute Avoidance Board
Not for UK…. but
ECC4 , not
PSC4
X9 Transfer of rights
X8 Undertakings to Client and
others ‘collateral warranties’
Key Changes
NEC 4

New
and
changed
ECC
options
Information
Model
Information Model
Requirements
Information
Execution Plan
X10 Information modelling
X22 Early
Contractor
Involvement
IP and license
to use
Retention
of docs
PII
Due skill
and care
X15 The Contractor’s design
X21 Whole life cost
Contractor can propose
changes to Client’s Scope to
reduce OPEX
Do a deal on Scope, Prices,
Completion Date
X11 Termination by the Client
X4 Ultimate holding company guarantee
Also apply to PSC4
Key Changes
NEC 4

Deleted
options
PSC Option
G Term contract
Key Changes
NEC 4

Language
‘Risk Register’
(RIP) is now
‘Early Warning
Register’
ECC ‘Works
Information’ is now
‘Scope’
‘Employer’ is
now ‘Client’
‘Employer’s risk’
is ‘Client’s liability’
ECC4 , not
PSC4
Gender neutral
Key Changes
NEC 4

Core clauses
Detail
1-9
1
2
3
5
6
4

Core clauses
NEC4 Changes
1
1
PSC4: ‘Service Manager’ introduced
for all actions under the contract (except
pay, terminate, dispute and change the
Service Manager – left with Client)
(replicates ECC (Project Manager) and
TSC (Service Manager))
No real difference in principle from PSC3
with ‘Employer’s Agent’ option
Client may appoint own staff or an
external consultant to the role – issues?

General
• Prompt for Scope to specify ‘communication
system’
• PM prepares first Early Warning Register
• ‘early warning meetings’ at ‘no longer interval’
than in Contract Data
• Contractor’s proposals to change Client’s
Scope
• Options C and D – Prices not reduced – as ECC3
• Options A and B – if accepted Employer gets the
‘value engineering percentage’ of saving (63.12)
1
1
PSC now also allows
‘Consultant’s Scope’ but no
similar value engineering
percentage
Core clauses
NEC4 Changes

Time
• No response to a submitted
programme in two weeks?
• Contractor may prompt
• Another week of silence?
• Programme treated as accepted
3
3
ECC4 and PSC4
Core clauses
NEC4 Changes

Rebranded ‘Quality management’
• As PSC
• Quality
o quality management system as
requirements in Scope
o quality policy statement
• For acceptance of PM
o quality plan
• For acceptance of PM
• Changes for acceptance of PM
• PM may instruct C to correct
failures to comply
• Odd that it’s the PM, not Supervisor?
4
4
Core clauses
NEC4 Changes

Payment
• Contractor application for payment ‘in
form stated in Scope’ required to get
paid
• Fee – no separate ‘subcontracted fee
percentage’
• Defined Cost
• no exclusion of cost of preparing
compensation events (Options A
and B)
• ….but will still have to show
increase in planned Defined Cost
to increase the Prices.
5
5
Also applies to PSC4: Good
Money
NEC4 Changes

Final assessment (53)
• By PM four weeks after Defects
Certificate
• Contractor may prepare if PM has
not done so
• ‘conclusive evidence’ of final amount
due – unless…….taken through
dispute resolution process
5
5
Also applies to PSC4: Good
Money
NEC4 Changes

Final assessment…. more
• WI or W2
• referred to the Senior Representatives
within 4 weeks
• On and up to Adjudicator if Senior
Representatives have not agreed within 3
weeks
• On and up to tribunal within 4 weeks of
Adjudicator’s decision
• W3
• On and up to Dispute Avoidance Board
• On and up to tribunal within 4 weeks of
DAB’s recommendation
W
5
Money
NEC4 Changes

‘Priced’ options A and B
• ‘Short Schedule of Cost Components’
• sets Defined Cost for compensation
events only
• People based on people rates
• Charge based on ‘percentage for people
overheads’ deleted
• Payments to Subcontractors now allowed
• Design and manufacture – no overhead %
applied to rates
5
5
Changes to role as QS support to
PM
Money
NEC4 Changes

‘Cost based’ options C,D,E
• Schedule of Cost Components
• sets Defined Cost for compensation
events and routine payments
• Just the one ‘Schedule of Cost Components’
– no ‘Shorter SCC’ as ECC3
• Charge based on ‘percentage for Working
Areas overhead’ deleted
• Payments to Subcontractors (now in SCC)
• Design and manufacture – no overhead %
applied to rates
5
5
Changes to role as QS support to
PM
Money
NEC4 Changes

‘Cost based’ options C,D,E
Finalisation of Defined Cost
• Contractor notifies when ‘a part’ of
Defined Cost is finalised
• PM responds within 13 weeks
• Contractor responds to comments
within 4 weeks
• PM accepts or corrects within 4
weeks
• If PM misses a response time,
Contractor’s assessment treated as
correct.
5
5
Same in PSC4 : Good
Money
NEC4 Changes

PSC C and E – THE BIG ONE
• Radical – Consultants treated like Contractors
have been for 20 years
• No longer paid rates
• Instead ‘Defined Cost’ (in ‘Schedule of Cost
Components’) + Fee
• Detailed list of ‘cost to employ’ amounts
5
5
Consultants need to review how that relates
to their way of recording costs and so any
fee percentage required (will include profit)
Money
NEC4 Changes

Money – Defined Cost in PSC4 Options C and E
amount due
(50.3)
Price for Services Provided to Date (PSPD)
expenses (if any) in Contract Data
plus …… less bits and pieces , less bits and
pieces
is the cost of the components in the Schedule of Cost
Components less Disallowed Cost.
is the total Defined Cost which the Service Manager forecasts
will have been paid by the Consultant before the next
assessment date plus the Fee.
Defined Cost
(11.2(17))
PSPD
(11.2(21))
Money
NEC4 Changes

Fee
52.1
Defined Cost
– as in the…
… Schedule of Cost
Components
Red =
Tendered
1 People:
close to ‘real’ cost to employ
2 payments to Subcontractors
3
charge for ‘support people and office
overheads = overhead percentage *
people costs
4 insurance – NOT incl premiums
= fee percentage * Defined Cost
Disallowed
Cost
expenses
completely
separate
Defined Cost
PSC4 Options C and E

Defined Cost
PSC4 Options C and E
NEC4 PSC: understanding the new
payment regime
Our article on NEC website:
https://www.neccontract.com/About-
NEC/News-and-Media/NEC4-PSC-
understanding-the-new-payment-regime

Core clauses
NEC4
Compensation events
• Additional compensation events in
Contract Data part one
• Proposed instructions given its own
clause (65)
• New compensation event if quotation for
proposed instruction not accepted
• ‘dividing date’ between ‘actual’ and
‘forecast’ Defined Cost (63.1)
• delays assessed using Accepted
Programme ‘current at the dividing
date’…updated for progress (63.5)
6
6
Same in PSC4 : Good

Evolution, not revolution
New contracts, new options
Some ‘fixes’
Some (good) new ideas
Lots of ‘tidying’ improvements
Summary
SB1

SB1 this summary needs to drive a call to action and needs to make stronger case for NEC4.
Saurabh Bhandari, 08/12/2020

Moving from 3 to 4 is a
no-brainer.
NEC3 contracts no
longer ‘maintained’
Opportunity to improve:
• Z clauses
• Training
• Templates
• Communication forms
https://www.neccontract.com/About-NEC/News-and-
Media/Three-years-on-it-is-time-clients-switched-to-
NEC

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NEC3 to NE4 webinar

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