Introduction to the UK’s The Construction Playbook: A Guide for NEC Users
July 23, 2021
Bryan Cave Leighton Paisner LLP
To print this article, all you need to do is register or log in to Mondaq.com.
In this article, first published in the July issue of the NEC newsletter, Shy Jackson takes a look at the UK government’s The Construction Playbook related to NEC contracts.
The UK Government’s The Construction Playbook (HM Government, 2020) was released in December 2020 with the aim of changing the way public construction projects are carried out and getting it right from the start (see Issue 111). While this will directly affect many NEC users, it will be familiar territory for most.
The 80-page guide contains principles and guidelines designed to transform the way public works projects and programs are procured and managed. The aim is to achieve this change through a systematic approach to risk, sustainability and innovation across project and program portfolios.
The guide covers a wide range of areas, from preparation and planning to selection and project implementation. It covers topics such as commercial pipelines, digital technology, benchmarking and cost models, risk allocation and successful relationships.
The guide identifies 14 key policies for the procurement and procurement of public works projects and programs. The following is known to NEC users and is already provided for in the NEC contracts.
- Embed digital technologies further into contracting – this encourages the use of the UK BIM framework and the development of a national digital twin. This approach is supported by the NEC information modeling provisions in option X10.
- Early supply chain involvement – this should be used in developing the business case for projects and programs to reduce downstream issues and develop a clear results-oriented design and specification. NEC provides for this under option X22, which is very suitable for achieving these goals. Alternatively, the NEC Professional Service Contract (PSC) can be used for preliminary construction work, followed by the NEC Engineering and Construction Contract (ECC).
- Results-Based Approach – The goal is to use a project scorecard and performance metrics to ensure that the desired results are achieved. This is in line with the use of key performance indicators in NEC under option X20, as well as low-performance damage under option X17, both of which help to achieve certain results.
- Benchmarking and Target Cost Models – The use of data from previous projects to develop benchmarking is encouraged, as is the development of a target cost model to improve understanding of total cost of living and value. NEC contracts recognize the importance of lifetime cost in option X21, which provides a mechanism to help identify lifetime savings.
- Risk Allocation – Inappropriate risk allocation is identified as a problem for suppliers and can be avoided through better market exposure. NEC has developed a balanced risk distribution that suits all parties based on how well they are able to manage risk. The modular form of the NEC contracts with the choice of main and ancillary options also allows for a change in the risk allocation between the parties to take into account the risk profile of the project and market sentiment. The guide also suggests that parties should develop early risk work and create a risk allocation matrix to check which parts of the supply chain are best suited for risk management. This is the same approach as the NEC Early Warning System.
- Payment mechanism and pricing approach – this is designed to work with risk allocation to incentivize desirable behaviors or outcomes. NEC offers a wide range of flexible payment models in variants A to F and sets incentives for better behavior and cooperation, in particular through the use of target contracts.
- Processing planning and ongoing financial monitoring – this serves to prevent and plan insolvency risks. The options identified to mitigate risk are bonds, guarantees and project bank accounts, all of which appear in NEC in options X4, X13 and Y (UK) 1.
Effective contract drafting
Effective contract design is one of the most important guidelines in this guide, which is treated as part of an overall section that deals with preparation and planning. This reflects the knowledge that contracts have to be drawn up early in the planning process and not concluded later.
When it comes to effective procurement, the government plans to create a procurement environment that creates a sustainable, resilient and effective relationship between contracting authorities and the supply chain that is results-driven and creates long-term value for all. His position is that standardized contract terms can simplify and accelerate procurement processes and improve the transparency of expectations.
With regard to the use of standard contract forms, the guide makes the following points.
- A common approach across the public sector means that best practices are easier to embed and that suppliers are more likely to experience consistent application of policies and procedures.
- Contracting authorities should ensure that they have adequate resources to effectively manage contracts.
- Standard building contracts with appropriate options should be selected unless the project or program warrants a bespoke approach. If, for certain reasons, other forms of contract are used, compliance with the guideline should be explicitly addressed in the corresponding governance and approval processes.
- Before submitting an offer, stress tests and peer reviews of the draft contract based on the elements mentioned above can be helpful, in particular to check for unintended consequences. It is important to ensure that the contractual conditions do not inadvertently restrict innovations, sustainable supply chains or investments in modern construction methods.
The guide states that standard contracts should be selected from NEC3 or NEC4 as well as JCT 2016 and PPC2000 / TAC-1 and FAC-1. These are standard forms currently in use and if one looks at the key policies identified in the guide it becomes clear that the NEC is particularly well suited to achieving the objectives of the publication.
It also states that contracting authorities should have an obligation to avoid conflict and include appropriate provisions as a standard clause in all public works contracts so that they can be used to resolve problems before they escalate into disputes. The use of such a pledge to obtain non-binding recommendations is reflected in NEC Dispute Resolution Options W1 and W2, which allow disputes to be referred to high-level representatives of the parties for negotiation before they are referred to arbitration and in the NEC option W3 through the use of a dispute avoidance board. NEC has provided guidance on how this latter technique can be used in contracts subject to UK building law.
The use of NEC contracts will allow the parties to achieve the goals of the construction playbook. It is designed to be flexible and allows risk allocation that corresponds to the specific requirements of a project, for example through the best possible assignment of design responsibility, and enables a clear performance-related scope to be created with guidance on how to achieve this, NEC provides in the user manuals
NEC also encourages collaboration in project delivery by requiring in every NEC contract that the parties act in a “spirit of mutual trust and cooperation”. This collaboration requirement can be extended to the entire supply chain either by using the X12 multi-party collaboration option or the NEC Alliance Contract (ALC).
This increased collaboration reflects the stated goals of the guide to change the way projects are carried out.
Reference: HM Government (2020) The Construction Playbook, Government Guidance on Sourcing and Contracting Public Works, Cabinet Office, https://www.gov.uk/ Government / publications / the-construction-playbook.
This article first appeared in issue 113 of the NEC Users’ Group newsletter from July 2021.
The content of this article is intended to provide general guidance on the subject. Expert advice should be sought regarding your specific circumstances.
POPULAR ARTICLES ON: UK Real Estate and Construction
Landlords watch out, Cram Down is here
Mills & Reeve
The Part 26A scheme involved dividing landlords into five separate classes based on the profitability of the leases, similar to how leases are categorized in a retail CVA.
Lift or loosen restrictive alliances on land
Developers will be all too aware that restrictive agreements can prevent land from being used for a specific purpose. Restrictive agreements can restrict the use of land; prohibit certain transactions …