Understanding the contract types and options is a crucial step in adhering to the NEC principles of managing risk, cost and cross-party collaboration. In this guide, we’ll take you through the contract types, the main options and the secondary options.
What are the Main Types of NEC4 Contract?
The NEC4 suite of contracts cover a wide range of project types and levels of risk. Here are the main contract types to choose from:
Engineering and Construction Contract (ECC)
The Engineering and Construction Contract (ECC) is probably the most commonly used contract in the NEC4 suite. It has a modular structure, meaning that it can be adapted for various sectors, including civil, building and energy.
It offers the six main options for pricing and risk allocation – see the Main Options below for more details.
Engineering and Construction Subcontract (ECS)
The ECS is very similar to the Engineering and Construction Contract, but it also allows the Contractor to sublet part of the work to a subcontractor. Some of the timescales are adjusted to account for the additional communication required between parties.
Engineering and Construction Short Contract (ECSC)
The ECSC is an abbreviated version of the ECC designed for projects that are “low risk”, i.e., less likely to be significant changes.
Engineering and Construction Short Subcontract (ECSS)
This allows the Contractor to pass down terms to a Subcontractor on a low-risk project.
Professional Services Contract (PSC)
This contract is intended for those providing professional services, such as design consultants. It has clauses very similar to those in the ECC and ensures that all parties are following the same NEC obligations and processes.
There is also a Professional Services Short Contract (PSSC) that is suitable for less complex projects.
Framework Contract (FC)
A framework contract is designed to set out terms for future, smaller contracts or call-offs, detailing the overarching conditions and then individual packages will be procured under one of these other NEC contracts within the NEC suite.
Supply Contract / Short Supply Contract (SC / SSC)
These contracts are for suppliers of goods to a project, with the SC for large-value, bespoke items and the SSC for more general supplies.
Dispute Resolution Service Contract
Previously referred to as the Adjudicator’s Contract, this is used when there is a dispute. The adjudicator will follow the process as set out by the contract to reach a decision on the dispute.
Design, Build and Operate (DBO)
This contract is for when the Contractor is used to design, build and run a facility for the client. This is a new contract within the NEC4 suite.
Alliance Contract (AC)
These contracts are designed for large, complex projects, where multiple parties all sign up to one agreement.
Facilities Management (FM)
Similar to the TSC but intended to be specifically used for managing facilities.
What Are The Main Options in the NEC4 ECC Contract?
The main options are there to define the payment mechanism and risk allocation.
- Option A – Priced contract with activity schedule. Ideal for well-defined scopes, this is a lump-sum contract where the Contractor is paid according to a pre-agreed activity schedule. Contractor takes the risk for errors in the activity schedule.
- Option B – Priced contract with Bill of Quantities. Very similar to Option A, except it uses a bill of quantities for payment. Client takes the risk for errors in the bill of quantities.
- Option C – Target contract with activity schedule. This is a collaborative approach where a target cost is set and savings and overspends are shared.
- Option D – Target cost with Bill of Quantities. Similar to Option C, but based on bill of quantities to ascertain the target cost rather than an activity schedule.
- Option E – Cost reimbursable contract. In this option, the Client pays the Contractor’s actual costs, plus a fee. Used when the scope is uncertain and the risk to the Client is higher.
- Option F – Management contract. This is designed for complex projects where the Contractor manages the works, and is reimbursed for all subcontractor costs. The client bears the primary financial risk for the project works.
What Are The Secondary Options?
It is possible to customise contracts with further secondary options as well, allowing the project to be procured according to the desired risk profile being sought for the project. The secondary options are:
- W Clauses: defining dispute resolutions procedures.
- X Options: these clauses tailor risk, performance and delivery mechanisms.
- Y Clauses: these address statutory requirements like UK payment legislation.
- Z Clauses: these are any additional clauses that allows the Client to add bespoke amendments which can be extra over clauses or amendments to existing clauses.
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Choosing the right contract is the first step in effective NEC contract management, but it is just the beginning. Contract Bee can help you navigate seamlessly through your collaborative NEC project. Get in touch today to discuss how.
