1. NEC vs JCT 7th June 2019 FA

2. Fergus Aitken BSc MRICS MAPM Chris Bourne BSc (Hons) MRICS
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’ FA
Who has any knowledge or has used any of these forms of contract ?
Who has used NEC ? Who has used JCT
{If some knowledge then split the room]

3. Opening remarks FA

4. History
JCT
NEC
Main contract used within the building sector of the UK construction industry since 1931
The New Engineering Contact / Engineering and Construction Contract was first published in 1991
Latest editions were published in Over 60 different versions
Now in its 4th edition published June 2017
JCT claims pre­-eminence due to its longevity
NEC is the modern kid on the block (but emerged from previous ICE conditions)
Traditional’ (or ‘master and servant’) style of contract
Aims to create a collaborative/partnering ethos, with a proactive approach
Building industry are used to JCT as it’s been around for a while and the building industry’s set up complements its use, but NEC is now well established
NEC3 is now all but mandated for public sector projects (following the Cabinet Office’s endorsement in 2008).
Civils sector are used to NEC
Can see JCT has longevity.
Been around forever. I bet some of you in this room can remember JCT 80 ?
NEC likes to think it is a popular contract – but it is not.

5. National Construction Contracts and Law Survey 2015
This year (2018) JCT has shown a marked growth, and is now at levels not seen since NEC, which had been growing year on year, has contracted and has returned to the levels that we saw in Use of bespoke contracts has fallen from 11% to 5%.
Whilst JCT use has historically shrunk, this is only to be expected as new forms emerge, especially if they are government mandated.
But JCT is now having a resurgence.
Maybe people have tried the new contract on the block and they don’t like it !

6. Main works contracts = 12 works contracts = 2 works contracts
JCT (2016)
NEC3 (2013)
Standard Building Contract - 3 versions
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
NEC3/NEC4 Engineering and Construction Contract
Minor Works building Contract - 2 versions (1 with Contractor design)
NEC3/NEC4 Engineering and Construction Short Contract
= 12 works contracts
= 2 works contracts
12 works contracts mean it can be more tailored to specific needs.
You have to do a lot of work to NEC to tailor it.
It doesn’t even have a D&B version – you have to create it yourself (if you know how) !

7. 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
Contracts are comparable.

8. Generally
JCT (2016)
NEC3
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.
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
JCT is traditional – we all understand it.
There is no doubt as to what something means – definition is good.
JCT has guidance notes, but they do not form part of the contract ! Why not ?
It is open to interpretation.

9. Project Management/ Contract Administration
JCT
NEC
Are administered by an Architect / Contract Administrator. There is also a Quantity Surveyor to carry out valuations (including variations and loss and expenses matters).
• A clerk of works may also be appointed to act as an inspector.
Include roles for:
• a Project Manager to manage and administer the contract and
• a Supervisor to check that work is carried out in accordance with the Works Information.
The Architect / Contract Administrator role generally doesn’t involve the pro active process driven approach required for the Project Manager to NEC contracts.
NEC contracts are driven by a set of processes that involve the parties working together to resolve issues as they occur.
Traditional roles for a traditional contract.
NEC doesn’t even have room for a QS ! That can’t be good.
Even Fergus can’t argue with that one.

10. Project Management/ Contract Administration
JCT
NEC
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
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.
Both lead roles in both contracts are important – you need contract admin skills.

11. = Similar management input overall
May be able to finish earlier but look how much effort you have to put in to manage the NEC.
How much is all that going to cost in consultants time.
JCT has mechanisms that you can use to get on top of the accounts and finish at the same time for much less input.

12. Collaboration/ Partnering
JCT
NEC
“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)
“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 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.
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.
FA lead.
Collaboration is in both contracts. It is just in different places.

13. Pricing JCT NEC 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
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
Both forms have good/different basis of pricing. Not much difference.
But no provisional sums in the NEC – really !
NEC always needs amending to include provisional sums.
They even had a chance to include them in NEC4 – and missed it.

14. Payment
JCT (2016)
NEC
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.
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
Payment is very clear. You don’t have to go searching around to find out what all of your obligations are.

15. Key bits FA

16. Key requirements These areas are key:
Time
These areas are key:
Cost - timely agreement of the value of changes
Time - how it deals with the programme
Quality – inspection arrangements and defects resolution
Risk – how these are identified and resolved
+Risk
Cost
Quality FA

17. 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) FA

18. Cost - variations/ claims generally
JCT (2016)
NEC3
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.
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
A nice set of valuation rules – that is what JCT has.
Rules based on on what the contractor has told you at tender the cost is.
NEC – Forecasted cost. What is all that about.
It seems unfair when a contractor has £10,000 in an activity schedule but when the item is omitted the forecasted cost is only £5,000.

19. Cost - variations/ claims generally
JCT (2016)
NEC3
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.”
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
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
NEC generally relies on more objective tests e.g. NEC uses a worse than 1 in 10 year approach to weather, which is objective.
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
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.
Whilst the NEC has Ces, JCT also has an equivalent quotation procedure that can encompass costs loss and expense etc.
Recommend using the quotation procedure.

20. Cost - pros
JCT (2016)
NEC3
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
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);
Less onerous to determine cost
NEC procedure is very complex and involves a lot of subjectivity.

21. 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. FA

22. 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. FA

23. Programme/ Delays JCT (2016) NEC3
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.
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.
Clause 31 programme.
Have you seen all the requirements to comply.
Who has ever seen a compliant clause 31 programme – event he contractors cannot produce one.

24. Programme/ Delays
JCT (2016)
NEC3
• 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.
• 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.
The key to the JCT is to use the quotation procedure to give cost and programme certainty.
In reality most Clients write a clause into the preliminaries requiring the contract to be updated and reported monthly.

25. Practical Completion JCT NEC3 (2013)
JCT which relies upon a subjective judgement of practical completion determined at the time.
JCT requires the issue of a non completion certificate before LAD’s can be withheld
NEC identifies a state at completion which is defined within the works information
NEC is a little rigid, and the reality ios that most clients want handover to take possession f the building, and the flexibility in the JCT allows a PC certificate to be issued with defects noted.
In reality we also find this is what happens in most NEC contracts.
Non-completion certificate is a strong tool.

26. Quality/ Defects JCT (2016) NEC3
Defects after completion are to be rectified within a reasonable time
Defects after completion are to be 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.
NEC is a little rigid and often the periods stated cannot be achieved.

27. Risk management JCT NEC3 (2013) 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
• 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
Risk is fixed is a good thing.
It is good the NEC can be amended to reallocate risk but the way it is achieved is rather clunky.

28. Early warning JCT (2016) NEC3
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.
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 .
Can’t deny the NEC EW procedure is a good thing, but with the way JCT is written most of the risk is passed anyway.

29. Summary pros and cons FA

30. 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 CB

31. 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 FA

32. 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) FA

33. 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 CB

34. Summing up FA

35. So which contract would you choose?:
Contract choice
So which contract would you choose?:
Time – which contract is more likely to ensure the project is finished on time
Cost – which contract will give better value/ more cost certainty
Quality – which contract will give me a better product
Risk – which contract is better at dealing with risk
Both can be used on the YORbuild2 framework.
CB & FA
JCT has been around the longest.
It is still the most popular contract.
Now you know why.

36. Q&A/ Close