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New Nec3 Contracts For Supply Goods Launched

Tuesday, 19 January 2010

Two new NEC3 contracts for the supply of goods and equipment have been launched by NEC, providing the construction and engineering sector with the first standard form contracts.


The NEC3 Supply Contract deals with the purchase of high value goods and associated services including design.  The NEC3 Supply Short Contract deals with the purchase of goods under a single order or on a batch basis, but is for those contracts which do not require sophisticated management techniques and impose only low risks on both the purchaser and the supplier.  Both deal with local and international purchase of goods and will be available from February 2010.  They join the suite of NEC contracts which are designed to facilitate sound project management and reduce the risk of costly overruns and disputes.


The new Supply Contracts are similar in their approach and ethos to that of other contracts in the NEC3 family, in that they promote collaborative working and effective risk allocation.  They deal with provision of goods rather than works or services, however, they include significant differences of detail, such as clauses to provide for carriage requirements (particularly international transfers) and the ability for the supplier to provide associated services such as training operators. 


The publication of the new Supply Contracts is set to expand the scope of NEC into other areas such as the energy and manufacturing sectors where a best practice contract for supply or procurement of items is required. The use of standardised terminology and compatible processes will remove the need for bespoke documents and the use of Incoterms (if desired) makes the contracts ideal for international sales and purchases.


Nigel Shaw, Chairman of the NEC Panel who created the Supply Contracts, comments: "The Supply Contracts have been developed in response to a concern amongst industry procurement professionals that there was not a standard contract available that brought current best practice principles to the task of procuring supplies of plant, equipment and materials.


"At present most organisations, whether they are sellers or buyers, have their own conditions of sale or purchase that they attempt to incorporate into their contracts for the supply of goods. These conditions are often one sided, favouring the party putting them forward.


"During the lead up to the formation of a contract this can result in a 'battle of the forms' with both parties trying to incorporate their conditions into the contract to the exclusion of the other parties'. The resulting contracts usually major on who gets the blame if things go wrong, but do little to encourage good outcomes for the parties.


"The key objective of the NEC3 Supply Contracts is to encourage the parties involved to work together to effectively allocate risks and create a working relationship which will ultimately provide value for money for the purchaser and a reasonable return for the supplier."


The NEC3 Supply Contracts deal with many of the issues that buyers will be familiar with such as responsibilities of the parties and payment. However, added features of the contract include:


  1. An early warning routine - if something might affect the price, delay delivery or degrade the performance of the goods, both seller and buyer warn the other as early as possible and when there is still time to remedy the situation. The parties then work together to avoid the situation or reduce the impact.
  2. An obligation to properly schedule deliveries, factory tests and inspections, and to maintain and monitor a realistic programme.
  3. A realistic process for managing defects, including defect correction periods to rectify faults during the overall period for which the supplier is liable for defects and a defect access period to ensure that the supplier is given prompt access to defective products.
  4. The NEC3 system compensation event process. This is a logical series of steps (notify - quote - assess - implement) to allow the parties to determine the price of variations, claims and other contract changes as soon as possible after the need has arisen. Agreeing what to do in 'real time' and, to the greatest extent possible before costs are incurred, the parties work together to manage and decide on future actions, rather than arguing about historical costs which have already been incurred.
  5. Dispute resolution based on a straightforward adjudication process.
  6. A partnering option to allow the supplier to work constructively in a partnering group and be incentivised by meeting KPIs that contribute to a client's overall objectives.


Distinguished by their use of plain language and avoidance of legal jargon, NEC contracts are used by over three-quarters of the top UK construction consultants. 16 of the leading 20 consultants in the UK construction industry, identified by Building magazine in October 2008, currently use or have used projects procured by an NEC contract. The contracts are used in more than 20 countries and are the only standard form contracts to be recommended by the UK Office of Government Commerce for use on public sector construction projects.


The new Supply Contracts look set to be as popular as their predecessors with pre-production copies already in use by Meridian Energy, New Zealand's largest state-owned electricity generator.


The contracts and their associated guidance notes are available to purchase now in a special pre-order bundle for ££67.50 and are due to be published on 11 February 2010.


For more information visit http://www.neccontract.com/





Notes to editor

  • In 1985 the Institution of Civil Engineers decided to lead a fundamental review of alternative contract strategies for civil engineering design and construction with the objective of identifying the need for good practice. After much discussion and consultation, this review resulted in the publication in 1991 of a consultative edition, and in 1993 of the first edition of the New Engineering Contract (NEC). Since then, in response to industry demands, further standard forms of contract have been produced, using the same principles as were used in the NEC first edition. The Supply Contract and the Supply Short Contract are the latest contracts in the series.
  • NEC is a division of Thomas Telford Ltd, which is a wholly owned subsidiary of the Institution of Civil Engineers (ICE), the owner and developer of the NEC.
  • The NEC family of standard contracts all have the following characteristics:
  • o Stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract
  • o Can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location
  • o Is a clear and simple document - using language and a structure which are straightforward and easily understood.