17 Nov 2020

On 30 October 2020 NEC issued its second set of amendments for its NEC4 suite of contracts. The latest amendments take account of user feedback and recent legal developments. In this Law-Now, we outline the key changes that have been introduced and comment on their effectiveness.

Delay Damages and Triple Point

In those contracts which contain the optional delay damages provisions, additional wording has been added to make clear that the Client’s entitlement to be paid delay damages ceases at termination. Previously the clause stated that delay damages would accrue until Completion or (where applicable) taking over of the works by the Client. The new wording addresses the impact of a recent Court of Appeal decision (Triple Point Technology v PTT Public Company) where a similarly worded clause to the NEC4 provisions which have now been amended was held to be inapplicable on termination, meaning that liquidated damages that had accrued up until that point fell away, leaving the Client with only a general unliquidated claim to damages. Similarly, and despite the new wording, the amended contracts still allow the Client to claim additional costs associated with delay as part of the payment assessment following termination. 

For a more detailed explanation of the Triple Point decision (which is presently on appeal to the Supreme Court), please see our Law-Now here.

Dates for Payment and Rochford

In what appears to be an attempt to deal with the issue of the final date for payment being linked to an invoice arising from a TCC decision earlier this year (Rochford Construction v Kilhan Construction), the Y(UK)2 provisions in the contracts (including the professional service contract (“PSC”), term service contract (“TSC”) and design, build and operate contract (“DBO”)) where the final date for payment was linked to receipt of an invoice have now been amended. In these contracts the final date for payment is now either tied to a period of seven days after the due date or the period stated in the Contract/Subcontract Data. The due date for payment under these contracts has however now become a floating date being the later of the date of receipt of an invoice by the paying party, and fourteen days after the assessment date.

In Rochford, the court found that final dates for payment which were tied to an event or mechanism such as an invoice would not be compliant with the Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “Construction Act”). The court’s findings were obiter (i.e. not necessary for the decision) and made “with some diffidence” and so may be subject to challenge in future cases. However, the decision has caused parties to consider amendments to their existing contract terms.

For a more detailed explanation of the case please see our Law-Now here.

As outlined above, in accordance with the Rochford decision, the final date for payment now occurs a fixed period of time after the date on which payment becomes due.

This new approach, however, is not itself without difficulty. Taking the PSC and TSC provisions for example:

  • Section 110(1D) of the Construction Act prohibits the linking of a due date to the “giving to the person to whom the payment is due of a notice which relates to what payments are due under the contract”. The amended provisions link the due date to the provision of an invoice, which is itself linked to the Service Manager’s certificate, which would appear to be a notice relating to what payments are due under the contract within the above section.
  • The amendments also stipulate that the Service Manager’s certificate, which would be given prior to the due date, is to stand as the Payment Notice under the Construction Act. However, it is presently unclear whether a Payment Notice under the Construction Act may validly be given prior to the due date.

BIM

There are two subtle drafting changes in the optional BIM provisions:

  • at clause X10.7 (1), the first bullet point has been amended to remove an “error” in the Information Model other than a Defect in the Project Information as being a Client’s liability; and
  • at clause X10.7 (2) an amendment has been made for consistency with X10.7 (1) by excluding the supplier’s liability for a “Defect” (instead of a “fault or error” as per the previous drafting) in the Project Information where the required level of skill and care has been used.

Contractor’s/ Subcontractor’s Liabilities

In both term service contracts (main and sub-contract) and the DBO, the extent of the Contractor’s/Subcontractor’s liability at clause 81.1 has been expanded to include liability for loss of or damage to equipment provided by the Client/Contractor to the Contractor/Subcontractor. “Equipment” in this context is not defined but the Contractor/Subcontractor still retains liability for loss of or damage to any “Equipment” (as defined).

The change at clause 81.1 has been complemented by a simplification of the existing provisions regarding use of material at clause 71 and the removal of clause 72 in the term service contracts. 

Early Contractor Involvement

The entire option X22 early contractor involvement provisions in both the engineering and construction contract (“ECC”) and the alliance contract (“ALC”) have been replaced albeit the previous provisions have been largely retained.

The main impact of the changes is in relation to the process for proceeding to Stage 2. Both the ECC and ALC now contain express provisions setting out the contractual information including Access Dates and Completion Dates that needs to be changed when a notice to proceed to Stage 2 is issued.

In the ECC, there is now a requirement on the Contractor to provide a detailed submission to the Project Manager at the end of Stage One including any proposed changes to Access Dates, Key Dates, the Completion Dates, and the Prices.

Project Bank Accounts

Like the approach taken with the early contractor involvement provisions, the amendments have entirely replaced the existing Y(UK)1 project bank account provisions. The key changes are:

  • For the ALC, ECC, PSC and TSC the “account holder” with responsibility for establishing, and authorising payment from, the project bank account is to be identified within the Contract Data. This allows the Client to decide just how involved it wants to be in the operation of the project bank account. Other than in the ALC where the Client will always be the account holder (either by itself or jointly), the account holder will either be the Client’s counterparty or the Client together with its counterparty.
  • The provisions have generally been updated to be more compatible with electronic banking methods.
  • Except for the engineering and construction subcontract where the previous provisions relating to authorisation of payments have now been simplified, in the other contracts where there was previously a requirement for a formal “Authorisation” to be given, this has been replaced with a Payment Schedule. Payment Schedule provisions are also now included for the ALC. The Payment Schedule is a list of the payments entitled to be made to the Client’s counterparty(ies) and Named Suppliers and is required to be provided to the project bank.
  • In the provisions for all of the contracts listed above at the first bullet point, a Project Bank Account Tracker recording all payments made to and from the project bank account and the date each payment was made requires to be maintained and updated.

References:

Triple Point Technology, Inc v PTT Public Company Ltd [2019] EWCA Civ 230.

Rochford Construction Ltd v Kilhan Construction Ltd [2020] EWHC 941 (TCC).