JCT v NEC – which is the right contract choice for your project?
In this article we will explore the key differences to be taken into account between the JCT and NEC contracts when deciding what form of contract is the right one for your project.
The Joint Contracts Tribunal (JCT) and New Engineering Contract (NEC) each provide a suite of standard form contracts. The JCT contracts tend to be the most popular contract type, traditionally regarded as the UK’s standard construction contracts. The NEC contracts are more ‘progressive’, with NEC4 (ECC) being commonly used for engineering and construction projects. The NEC suite can, however, be widely used for goods, works and services in the UK and internationally.
These contract types differ in their style. JCT uses legal language and more precise terms. It is more suited to those seeking a ‘hands off’ approach to the project and/or greater certainty about risk. The NEC contract uses simpler English, designed to establish contract principles that can be interpreted in a ‘common sense’ way as part of a flexible, collaborative project management approach. There are fundamental differences between the JCT and NEC contracts in the way they deal with issues of time, cost, and quality.
Roles and responsibilities
The JCT contract is designed to transfer risk from the client to the contractor and this can foster an adversarial atmosphere between the parties. The NEC takes a ‘partnering’ approach seeking to find a fair balance of risk, by requiring all parties to work in a ‘spirit of mutual trust and collaboration’ to optimise delivery.
As the NEC requires more direct involvement from the client, so it is important the client is sufficiently experienced and resourced. For example, the client is responsible for the NEC scope (the ‘Works Information’ under NEC3). This can be challenging as it requires much more technical detail than the JCT employer requirements.
The JCT requires the client to appoint a Contracts Administrator (CA) or Employer’s Agents (EA), depending on the type of JCT contract, who deals with processes, procedures, and payment administration. The NEC instead requires a Project Manager (PM), whose wider remit involves proactive project management. It is therefore essential to select someone suitably skilled and experienced in administering/managing the type of contract selected.
Both contract types require the client to set the project start date, completion date, access date and any sectional completion dates. The JCT contracts have no other specific programme requirements or need for updates during the course of the programme. The NEC contracts, however, require the contractor to submit a detailed programme of work. As this becomes the key management tool which the PM uses to monitor progress and assess the need for changes, it must be kept up to date to reflect the ‘live’ situation. An ‘early warning’ procedure obliges both parties to raise any potential risk to time, cost, or quality as soon as they become aware of it. This brings problems and delays to the fore, allowing them to be addressed efficiently as the project advances. Under the JCT contracts, the contractor is only obliged to claim for more time and money after a risk event has occurred which could put the client in an unexpected and difficult position.
Both contract types manage costs to the employer in three stages: initial payment, variations, and final/interim payments. However, each stage is managed differently. Remuneration under the JCT contracts is on a lump sum basis with or without quantities, whereas the NEC contracts provide greater flexibility with more pricing method options as to how work is procured, using cost based open book contracts such as cost reimbursable, management contracting or target cost contract.
Cost variations and extensions of time are also treated differently. The JCT describes these as ‘relevant events’ and ‘relevant matters’, whereby time and costs are treated separately. This means that an extension of time will not necessarily guarantee a cost adjustment. However, under the NEC time and costs are grouped together under a ‘compensation event’. This gives the PM more control over the balance between time and cost when determining the optimum change solution. The contracts have different conditions for what constitutes a variation. For example, unforeseen ground conditions are a valid variation under the NEC contracts, but this is not recognised by the JCT contracts.
Both contract types provide that precise employer quality requirements are stated in a separate technical document. Both have a process for dealing with defects. The JCT provides for instructions to open up works for inspection, makes the contractor responsible for providing workmanship in line with the contract, but allows the CA/EA to issue instructions about workmanship that is ‘reasonably necessary’, without defining what this means. The NEC goes further by obliging the contractor and supervisor to notify each other as soon as they are aware of defects. It deals with searching for defects, the contractor’s responsibility for correcting defects and his failure to do so.
JCT contracts are commonly used in the private sector as employers and contractors are used to it. Private commercial property developers generally prefer the JCT because they can achieve greater control by transferring risk as far as possible, which helps to meet the expectations of their funders.
NEC contracts tend to be used by experienced, proactive clients with depth of management resources. This typically includes public bodies and large corporate occupiers and may involve large building or infrastructure projects.
Further details about the suite of contracts available can be found at the JCT and NEC websites. It is particularly important that new users of the NEC seek appropriate legal advice and have sufficient expertise to manage the contract. For example, it would be unwise to simply rebadge a JCT’s employer requirements document as a NEC scoping document, as the terminology and required level of detail differs. This could create inconsistencies with other documents, and potentially cause confusion and dispute between the parties. If you would like further guidance on this topic, please contact Susan Wells at [email protected].