To Be, or Not to NEC: Part 2 – Arrangement of the NEC Contract

Forensic & Litigation Consulting

February 20, 2019


In the first part of our series, we looked at the use of the NEC Contract in Australia. In part 2, we look at the arrangement of the NEC3 and how it differs from more traditional forms of contract.

Arrangement of the NEC3

With respect to the published documents, the NEC3 comprises the following sections of text:

  1. The core clauses – common to all contracts (and best left unamended);
  2. Six main Option clauses (A to F), which enable the most appropriate contracting strategy to be selected by the user insofar as they dictate the type of payment mechanism available. The main Option clauses comprise:
    • Option A – priced contract with activity schedule (lump sum contract);
    • Option B – priced contract with bill of quantities (re-measurable contract);
    • Option C - target contract with activity schedule (target cost with pain/gain mechanism);
    • Option D – Target contract with bill of quantities (target cost with pain/gain mechanism);
    • Option E – Cost reimbursable contract (cost plus); and
    • Option F – Management contract (cost plus).
  3. The dispute resolution Option clauses;
  4. Nineteen secondary Option clauses that may be chosen by the user once the main Option has been selected and include, for example:
    • Option X3 – Multiple currencies (used only with Options A and B);
    • Option X5 – Section completion;
    • Option X6 – Bonus for early completion;
    • Option X7 – Delay damages;
    • Option X15 – Limitation of the Contractor’s liability for his design to reasonable skill and care (as opposed to being fit for purpose under English law);
    • Option X17 – Low performance damages;
    • Option Y(UK)1 – Project Bank Account (whilst country specific, it is thought that a similar option can/will be introduced in Australia to satisfy the State Governments recent initiative to introduce project bank accounts for all State projects of $1.5M+ as of 01 July 2019); and
    • Option Z – allowing for ‘bespoke’ conditions of contract to be introduced, where deemed necessary by the user.

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