NEC (New Engineering Contract)
Initially released in the 1993, the NEC contract is often considered a more progressive approach to construction contracts. A distinctive characteristic of NEC contracts is the collaborative approach to contracting it cultivates (and requires).
NEC contracts are known for their plain language use, avoiding legal jargon where possible and replacing it with easy-to-understand terminology. This approach seeks to make the contracts more accessible and easier to understand for all parties involved.
FIDIC (International Federation Of Consulting Engineers)
First published in 1957, FIDIC contracts represent a more traditional approach to managing construction projects. FIDIC contracts typically transfer more risk to the contractor than NEC contracts.
The language used in FIDIC contracts tends to be more formal and legally oriented, reflecting its longstanding tradition and usage in the international construction sector.
Both NEC and FIDIC contracts are designed to be used internationally.
How Do NEC and FIDIC Treat Time?
The NEC and FIDIC contracts emphasise the importance of managing time effectively on construction projects. They use different terminology but align in fundamental ways. Both contracts mandate:
FIDIC's Approach To Time Management
FIDIC requires the contractor to provide an initial detailed time programme, which must be regularly updated whenever discrepancies arise between planned and actual progress or when the contractor's obligations are not met. This programme, essential for documenting progress, does not influence other provisions within the FIDIC framework. Thus, while it serves as a record and planning tool, its utility is limited to these functions.
NEC's Approach To Time Management
In contrast, NEC takes a more integrated and dynamic approach to time management. It demands not only an initial programme but also regular updates, which must include detailed information like float and time risk allowances. This programme becomes a central management tool, used for assessing variations, monitoring progress through earned value management, and adjusting for changes.
NEC mandates that this programme be consistently up-to-date, reflecting any changes in scope or project conditions.
Additionally, NEC introduces (contractual) key dates for deliverables and outcomes, with provisions for incentivising early completion and penalties for delays in submitting the programme.
Early Warning and Risk Management
A distinctive feature of the NEC is its
early warning mechanism, which requires the project manager and the contractor to proactively notify each other about any issues that could impact time, cost, or quality. This is followed by risk reduction meetings to mitigate potential problems before they escalate, fostering a collaborative, no-surprise approach that benefits both parties.
FIDIC has introduced an advance warning mechanism in its 2017 suite of contracts which is similar to NEC’s early warnings.
Comparative Analysis
While both contracts require a work programme from the contractor, NEC's use of the programme is more extensive and integral to project management. It serves as a living document crucial for daily management and strategic planning. FIDIC's approach, by comparison, places the contractor in a reactive position, requiring updates only after issues have arisen, potentially complicating project management and employer oversight.
How FIDIC and NEC Treat Cost
NEC and FIDIC contracts establish the financial framework for construction projects by providing that the price payable to the contractor be based on the bill of quantities, supporting predictable cost management. Moreover, they both incorporate provisions for stage payments, facilitating ongoing financial transactions throughout the project lifecycle. However, the NEC offers additional flexibility with options such as lump sum payments or cost-based open-book contracts, including cost reimbursable, management contracting, or target cost contracts.
Change Control Mechanisms
Change control, a critical aspect of contract management, highlights another distinction between the two contracts. FIDIC addresses change through variations or claims.
In contrast, NEC uses a unified approach for changes called
compensation events. This method necessitates the contractor to prepare a quotation shortly after the change occurs.
Quality management through the lens of NEC & FIDIC
Both NEC and FIDIC contracts emphasise the necessity of clearly defining quality requirements, which are usually detailed in separate technical documents that form an integral part of the contracts. These documents specify the expected standards concerning materials, workmanship, and, if applicable, the performance outcomes when the contractor is responsible for the design. Ensuring that the contracted quality level is specified and adhered to throughout the project lifecycle.
Design Responsibilities and Quality Standards
FIDIC differentiates its approach by offering separate contracts based on who is responsible for the design—either the employer or the contractor while NEC accommodates employer-design, contractor-design, or a combination of both within the same contract framework. This is facilitated through detailed works information that specifies which aspects of the design the contractor is expected to undertake.
Defect Management
Both contracts address the identification and correction of defects during and post-construction. They outline the contractor's responsibilities to rectify defects and the consequences of failing to address them.
NEC fosters a collaborative defect management process by mandating that the contractor and the supervisor notify each other of any defects as soon as they become apparent.
Handling of Defects and Performance Incentives
NEC offers a process for accepting defects when it makes sense for both parties, allowing for a proposal from the contractor that reflects time and cost savings to be considered and possibly accepted by the project manager. This approach can lead to practical, mutually beneficial resolutions, maintaining project momentum and efficiency.
