Construction contracts one year on – are we getting on together better?
Two new standards have been unveiled in the past 12 months with a key objective of cutting the number of disputes and court cases in the construction sector, but are they working?
At the time of writing (July 2018), it has been a year since NEC4 was unveiled, the latest version of the standard contract that is widely used in the UK. And six months have passed since the new FIDIC suite hit the shelves, including the hugely popular red book, which is used on more projects in more countries than any other contract form.
It is too early to say that there has been a positive effect from the new emphasis on openness and soft solutions to disputes in these documents, but I believe there is cause for optimism.
That’s because the influential organisations behind them are responding to a wider movement towards confronting the problem of too much acrimony in our industry. The cause of disputes in many cases is an over-emphasis on the bottom line in the tender process with developers pushing contractors into a race to the bottom to win work. It’s a process that spawns hostility when contractors try to claw back margin during the project.
Given that nobody wants their contracts to end in divorce, that must be a good thing but what are the pros and cons of NEC4 and FIDIC?
Published by the UK Institute of Civil Engineering, the original New Engineering Contract (NEC) was first published in 1993 but dates to a 1957 document, Conditions of Contract (International) for Works of Civil Engineering Construction.
NEC4: Widely used in the UK, NEC4’s predecessor, NEC3, was the specified form of contract for the 2012 Olympic Games and Crossrail, the largest construction project in Europe. It has also been used in decommissioning of nuclear power stations. Most Hong Kong Government contracts are tendered using NEC3 contracts. It is widely used on major projects in South Africa, as is FIDIC.
FIDIC: While the FIDIC suite of books are less frequently used in the UK than NEC, more contracts across the world are based on the FIDIC Red Book alone every year than any other international form of contract, and it is used in more countries.
- Stimulate good management
- Support the changing requirements of users
- Improve clarity and simplicity.
- Enhance project management tools and mechanisms
- Achieve a balanced risk allocation through more reciprocity
- Create clarity, transparency and certainty, and reflect international best practice
Evolution or revolution?
The new version of NEC was always intended to be a development of its predecessors, retaining key features such as its commitment to plain English, although there are additional Design Build Operate and Alliance contracts included. By contrast, the FIDIC Yellow Book, covering contracts for design and build projects, is significantly more comprehensive than the document it replaces.
In response to initiatives such as Women in Construction and wider cultural changes in society, both codes are written in gender neutral language.
Quality Management Plan
NEC4 introduces a requirement for the contractor to prepare a quality management plan, which is also included in FIDIC.
Should I stay with the standard form or amend it?
Both FIDIC and NEC encourage using an un-amended form, presumably because amended contracts have led to court cases in the past. They do acknowledge some changes will be required in most cases because of variations between projects.
NEC4 includes an option called X10 to support the use of BIM while FIDIC is considering how to deal with an evolving technology has yet to develop internationally accepted standards.
Both forms have raised the bar for transparency from start to finish. The idea is that anything that may affect time and cost is identified, assessed, and resolved before things deteriorate. In FIDIC, both parties must tell the engineer about future events that could affect the works, price or timeframe. This is similar in NEC4, which additionally imposes sanctions for non-compliance.
In the Yellow Book, activities must be logically linked, showing earliest and latest start and finish dates for each activity, float and critical path.
Do you accept?
As with FIDIC, a contractor's programme is deemed to be accepted if the project manager does not respond within the contract timescales.
Dispute Avoidance Board
NEC4 introduces the concept of a Dispute Avoidance Board, a standing committee set up at the outset of the contract, which makes regular site visits, to get to know the project so that it can adjudicate when parties bring issues to it.
Fitness for purpose
The Yellow Book and NEC4 take different approaches to fitness for purpose with an express obligation in the Yellow Book while NEC4 includes an option to require that the contractor uses the skill and care normally used by professionals designing similar works.
The full ramifications of the changes in these extensively used standard forms of contract have yet to be seen. I am hopeful that they will help to accelerate us towards a better way of working where at least fewer contracts end in dispute. It will be better still, if by stimulating more open relationships, these new documents influence the way that parties agree to work together in the first place.
By Michael Gallucci, accredited mediator and managing director of construction consultancy MPG
Which countries are leading the adoption of BIM?
Building Information Modelling (BIM) was first used by UK construction firms in the 1980s. Since then an increasing number of countries such as Germany, Austria, and Russia have also started to use it, but which country is leading the way?
According to research by PlanRadar, the UK, as of 2021, remains the leader in BIM implementation in construction when compared with other European nations. However, the company’s research shows that there is clear evidence other countries in close pursuit.
As part of the research into the adoption of BIM, PlanRadar examined government policy documents and conducted interviews to find out why BIM is being deployed in each country. The study also allowed the company to gauge construction professionals’ attitudes to digital technology tools in their industry, as well as explore where fast growth rates in BIM are most likely in the coming years. In addition, it looked at which governments have progressed furthest in making construction BIM mandatory.
PlanRadar says the findings are “a useful follow-up to the recently published Construction Manager BIM annual survey”, which pinpoints distinct barriers to adoption in the UK market.
While Britain has long been considered a pioneer in BIM technology, with projects such as the Heathrow Airport reconstruction, it seems that Russia is catching up. Even though its first BIM projects only appeared in 2014, PlanRadar says that the country “is on a steep upward trajectory”. According to the research, no other European country has adopted so many laws on standardisation and the mandatory implementation of BIM in the construction industry.
“Russia is arguably the most eagle-eyed nation for compliance and harnessing advanced BIM tech to drive efficiencies”, the company said.
Germany’s BIM adoption is also rapidly increasing as its government invests in BIM standardisation, skills training, and support for BIM projects, in line with its vision for the future digitalisation of the German construction sector.
PlanRadar research summary
As part of its research into the adoption of Building Information Modelling, PlanRadar has summarised each country. According to the company, here are the summaries for the UK, Germany, Russia, and France.
- The UK has the highest number of construction companies using BIM at level 2 and beyond.
- It remains the leader in the earliest use and implementation of BIM in construction projects.
- Since 2016 all state-funded projects must use at least BIM level 2, and this has led to a surge in awareness and use of BIM in the last decade. For private projects, BIM usage is advised but not mandatory.
- Currently, only 62% of small businesses in the UK actively use BIM, compared to 80% of large businesses.
- Approximately 70% of German construction companies use BIM at different levels. However, the majority are architects and design companies, making use of BIM in the design phase rather than construction and operation.
- Since 2017, BIM has been mandatory for projects worth over €100 million. And from 31st December 2020, BIM became mandatory for all public contracts relating to the building of federal infrastructure.
- BIM technology is used by very large property developers and construction companies that operate in the largest cities such as Moscow, St. Petersburg, Kazan, Ufa, Yekaterinburg.
- When it comes to legislation standardising and mandating BIM, Russia is the clear leader, and today there are 15 national standards (GOSTs) and eight sets of rules for information modelling in the country.
- From March 2022, all government projects are required to use BIM technology, and further legislation is in the pipeline.
- France does not yet have a single BIM standard enshrined in law or regulation, yet 35% of developers in France use BIM for their real estate projects.
- In addition, 50 to 60% of the leaders in the French construction market have switched to BIM, with level 2 as the most common maturity level.
- At the end of 2018, BIM Plan 2022 was launched to encourage construction participants to integrate it into their workflows. Still, construction companies have struggled to agree since there is no single approved BIM standard.
The research report concluded that the adoption of BIM is yet to reach its full potential in Europe. While the UK is currently the leader, countries such as Russia and Germany are evidently forging a clear path and have goals surrounding skills and legal frameworks. PlanRadar says that next year’s European BIM ranking “could paint a very different picture”.