JCT v NEC: Which contract is right for your project?
We are often asked when to use the JCT v NEC suite of contracts. In this article, we examine some of the main differences between the key JCT and NEC4 contracts. Generally, NEC contracts are aimed at engineering projects but are easily adapted to building works. JCT contracts are aimed at building works rather than engineering projects but again can be adapted for both.
JCT contracts are considered by the majority of the UK construction industry to be a market standard for building projects and therein lies one of the main challenges to using the NEC forms, people are more familiar with the JCT forms. Whilst NEC contracts are drafted using plain English that can be easily understood, there is still a reluctance amongst those who are familiar with the JCT to switch.
In RIBA Construction Contracts and Law Report 2022, published earlier this year, 71% of those surveyed reported using JCT contracts during the past 12 months, in contrast to 31% reported using NEC contracts.
What is a JCT Contract?
The Joint Contracts Tribunal (JCT) was established in 1931:
- Purpose: standardise forms of procurement for the British construction industry and can be seen as the standard ‘traditional’ contract for the UK.
- Procurement routes covered: Designed to cover the many types of procurement options, for each type – traditional, design and build, minor works, management contracting, construction management etc, the JCT offer ‘suites’ of standard forms that operate together (although often with amendments in practice).
- Latest editions: 2016 Edition.
- Approach: The main feature of the JCT is the way their suites focus on allocating risk and assessing compensation without ‘hands-on’ conflict management procedures.
What is a NEC Contract?
The New Engineering Contract (NEC) was established in 1991:
- Purpose: as a response to perceived shortcomings in the prominent contract suites at the time (including the JCT).
- Procurement routes covered: Like the JCT, the NEC library has many suites of contract to facilitate different types of procurement. However, unlike the JCT, the NEC was drafted for use internationally (not just the UK).
- Latest editions: The latest version is known as ‘NEC4’ and was published in 2017 (with supplements later issued).
- Approach: The intention behind the NEC suite of contracts is to require a more collaborative approach between contractor and employer in resolving any cost, quality or time issues. Use of the NEC is more prominent in international projects and complex engineering contracts where each party has the resources to be proactive in the contract’s management throughout the project’s life but the domestic UK popularity of NEC is increasing.
NEC is now a common feature of the UK’s utilities, transport, healthcare and local authority sectors, reportedly endorsed by the Construction Clients’ Board (formerly Public Sector Construction Client’s Forum)i.
What’s the difference between NEC and JCT contracts?
There are several key differences between the JCT and NEC contracts. Traditionally JCT’s approach has been seen as encouraging a more adversarial approach to contract management, with the exception of its Constructing Excellence Contract.
The NEC seeks to encourage a more collaborative approach to managing the contract. Indeed, at the heart of the NEC suite of contracts is an express obligation for the parties and, taking the NEC4 Engineering and Construction Contract as an example, the Project Manager (PM) and Supervisor to:
‘act in a spirit of mutual trust and co-operation’
What does this mean in practice? Case law on the meaning of these types of obligation is limited but perhaps not as far reaching as the NEC hopes (i.e. to apply to all of the contractual obligations). In Costain v Tarmac , the court held that the ‘mutual trust and cooperation’ duty meant that a party cannot say or do something which lulls the other into falsely believing that a contractual time bar was either non-operative or could not be relied on.
The two types of contract also adopt a fundamentally difference approach to risk allocation and management.
- The NEC’s philosophy is that, by working together to anticipate and plan for the eventualities that can arise on a construction project, the impact of risks is likely to be reduced, leading to a better outcome for all parties. Its focus being on strong project management tools to promote best practice in procuring works.
For example, the NEC therefore includes a process of early warning.
- An ‘Early Warning Register’ is prepared by the PM at the beginning of the project, identifying potential risks and how those risks will be avoided or reduced, including any identified by the Contractor in the Contract Data. Note that this register is not intended to allocate liability for risks.
- The Early Warning Register is then updated by the PM throughout the project.
- The PM and Contractor must notify the other if either becomes aware of a matter which may impact the cost, programme or performance of the works.
- A meeting is then held to discuss what action to take and the Early Warning Register is updated and re-issued.
- Contrast with the JCT, which seeks to allocate all risks between the Employer and Contractor at the point of entering into the contract. Though there is no equivalent risk management process built into the contract, the Contractor is required to constantly use best endeavours to prevent delay to the works.
In terms of adaptability to meet the needs of the project:
- The structure of the NEC contracts is designed for flexibility. Most NEC contacts contain ‘core’ clauses but with a range of optional clauses to allow the parties to adapt the contract for their particular requirements. In addition, there is the option to include entire bespoke Z clauses.
For example, in the NEC4 Engineering and Construction Contract, additional compensation events can be stated in the Contract Data, Part One offering a far more accessible way of adapting a contract to address risks not covered by the standard terms.
- The JCT contracts do not offer the same level of flexibility.
We have detailed some further key differences in the table below, focussing on features in some of the main contracts in the JCT and NEC suite e.g. the JCT Design and Build Contract, the JCT Standard Building Contract and the NEC4 Engineering and Construction Contract (ECC). Note: Not all contracts in the suites of contracts have each of the features detailed below.
|Roles and Responsibilities||
CA (an independent 3rd party): oversees the project on a practical level, inspects the works and checks on progress, administers the payment process, any applications for extra time or money, and certifies practical completion and the making good of defects during the Rectification Period.
In addition to the above, the Employer’s Agent (who may be a third party or someone from within the Employer’s organisation) has authority to exercise all of the Employer’s functions under the JCT Design & Build Contract.
The PM’s overriding duty: to champion the NEC philosophy and promote the ‘spirit of mutual trust and co-operation’.
The PM may be someone from within the Client’s organisation but more often than not it will be a third party engineering or project management firm.
PM’s role includes: managing the Early Warning Register and the risk review process, operating the compensation event process, administering the contract including issuing instructions, certifying payments and certifying completion.
With this hands-on role, the PM must fully understand its duties under the NEC, navigating the various NEC time bar provisions and be experienced and able to proactively engage, and assist others to proactively engage, in the risk management process.
The Supervisor is part of the quality management of the works, responsible for checking that the works comply with the Scope, by overseeing tests and inspections.
The Client must also play its part in the risk management process and actively engage in the collaboration envisaged, if the project management tools are to be used to their best effect.
The Date for Completion is set out in the Contract Particulars.
Sectional completion (as an alternative) is also enabled.
Possession of the Site is given to the Contractor. The Employer may defer giving possession for up to six weeks.
The NEC Contract Data sets out the Completion Date but also includes an option to specify Key Dates in, for example, the ECC.
Key Dates work as milestones requiring the Contractor to achieve a stated key condition by the relevant Key Date. Key Dates are adjusted by Compensation Events.
If the Contractor misses a Key Date, the Client may be entitled to claim the additional costs incurred as a result of the Key Date having been missed.
The longer forms also have an Option for sectional completion.
|The programme is not a contractual document.||
Whilst the programme does not fall within the Scope, the longer form NEC contracts such as the ECC clearly set out the details that must be included in the programme. There are financial repercussions if the Contractor fails to submit its initial programme.
The Contractor is required to submit regular programmes and the current Accepted Programme plays an important role in assessing any extensions of time due to compensation events. Again, there are sanctions for breach.
The Contractor is entitled to claim additional time if the works are delayed as result of a Relevant Event.
The list of Relevant Events contains:
Taking the ECC, there are 20 compensation events which entitle the Contractor to claim extra time (with option to specify more in the Contract Data).
In contrast to the JCT these events also entitle the Contractor to claim loss and expense incurred as a result of any such delay.
Other important features of the NEC include the sanction if the Contractor has failed to give an early warning, with the Project Manager being entitled to assess the effects of the compensation event as if the Contractor had given such warning.
As a pre-condition to a claim for additional time, the Contractor must also give notice of a compensation event within the specified time frame.
The list of compensation events contains several of the matters covered by the JCT’s Relevant Events. Notable omissions from the list are:
Relevant Events are:
Most of the JCT contracts are lump sum contracts; historically, the most common pricing option for the UK.
However, given the current materials shortage, prime costs contracts (actual costs plus a fee) may be on the rise.
The JCT Prime Cost Building Contract and Management Building Contract are prime cost contracts.
The JCT also provides options for remeasurement contracts under which the final contact price is determined once the works are completed by reference to an approximate bill of quantities included in the contract.
Adjustments for loss and expense:
Unlike the NEC contracts, the Contractor is not automatically entitled to claim loss and expense where it is entitled to additional time.
Instead, the Contractor may only claim loss and expense for Relevant Matters. The list of Relevant Matters is shorter than the Relevant Events and contains things such as:
In addition the Contractor is entitled to loss and expense associated with a suspension of the works by the Contractor due to a failure by the Employer to make payment.
As many infrastructure contracts may not be best suited to a lump sum pricing model, the NEC contracts are structured around alternative pricing options:
Adjustments for loss and expense:
See above re: compensation events.
The Employer’s detailed specification is contained in the Employer’s Requirements/Specification.
The level of design contained in the Employer’s Requirements/Specification and whether or not the procurement method is traditional or design and build will determine how much control over the design and quality is maintained by the Employer.
The Contract Administrator or Employer’s Agent is responsible for inspecting the works throughout the project and has powers to issue instructions for the removal of any works or materials that are not in accordance with Employer’s Requirements or to order the works are tested or opened up to ascertain compliance.
The Contractor is obliged to make good any defects, shrinkages or faults in the works due to a failure by it to comply with the contract; such defect being notified no later than 14 days after the end of Rectification Period.
Retention can be deducted from interim payments, with half paid to the Contractor after practical completion and the second half once the certificate / notice of completion of making good has been issued (i.e. once all defects have been made good).
The Client’s detailed specification is contained in the Scope and the NEC defines a defect as any part of the works which is not in accordance with the Scope.
The Supervisor is responsible for inspecting the works throughout the project.
The Contractor must correct a defect whether or not the Supervisor has notified him of it.
Defects can be notified at any time until the Defects Date i.e. the equivalent to the JCT’s Rectification Period.
Retention can be deducted from interim payments in the same way as the JCT, with half paid after Completion and the remainder paid following the issue of the Defects Certificate (which is to be issued at the end of the last defects correction period whether or not all notified defects have been corrected).
When would you use a NEC contract?
NEC contracts are flexible and can be easily adapted to suit difference methods of procurement and different pricing structures and they are designed for use domestically in the UK and abroad.
A good example of how the NEC works well, particularly for public bodies procuring works on frameworks, with the need for inbuilt flexibility, is the MoD’s £1.3 billion refit of its nuclear submarine base on the Clyde estuary in Scotland. In that case, the MoD is reportedly using an NEC4 based framework (awarding 10 year framework contracts in May 2018 to 3 contractors), with work packages to be awarded by direct award or competitive tender on a target cost basis (ECC Option C) but with flexibility to instead use the ECC Option A (Priced Contract with Activity Schedule) or ECC Option E (cost reimbursable) or, for smaller works, the shorter Engineering and Construction Short Contract.
Another key feature of the NEC contracts is the emphasis on collaboration and best practice project management. The Defence Infrastructure Organisation responsible for the refit stated that a key objective of the framework was to encourage a more collaborative approach to working in such a high security, highly regulated and highly congested operational environment.
When the project team needs to work collaboratively, undertaking optioneering to find process solutions which both achieve the Client’s requirements on performance and budgetary constraints, the NEC contracts have the project management tools to drive the right behaviours.
This is a good example of how the NEC contracts lend themselves well to larger, more complex projects particularly in the engineering/infrastructure sector.
When would you use a JCT contract?
JCT contracts are preferred by employers who want to retain a greater level of control over the project delivery and are generally favoured by domestic commercial developers and their funders.
JCT remains the most popular form of contract for projects in the UK but with the NEC being widely endorsed by a number of government bodies and organisations around the world, its use is increasingly more common.