Amending NEC4 for an Australian project may be sensible, but the reason for each change should be clear. A legal requirement is not the same as a client’s preferred risk allocation or internal approval process.
Why amend the contract?
There is a recurring suggestion that NEC4 needs to be amended before it can be used properly in Australia. That confuses legal requirements with commercial preferences.
An NEC4 contract used here may need amendment, but the reason matters. Australian legislation may require it. A client may have commercial or governance requirements. A project may justify a different allocation of risk. Only the first of those is inherently Australian.
The other two are often bundled together with legal requirements and presented as ‘Australian amendments’, as though NEC4 is inoperable unless they are made.
If security of payment legislation or another statutory regime requires something different, then deal with it. If a client wants more ground risk transferred to the Contractor, broader indemnities or a different liability position, that is a commercial choice. It should be assessed and described as such.
The fact that a provision appears in most Australian contracts does not make it a legal requirement, and it does not make the NEC4 position unsuitable for Australia.
What will the market tolerate?
One of the phrases regularly used in this discussion is ‘what the Australian market will tolerate’. There is something circular about that.
The contracts drafted and recommended over many years have helped establish those tolerances. A risk allocation becomes common, then familiar, then ‘market standard’. The next contract is compared with that standard and anything different is treated as unacceptable.
The better question is not whether the market will tolerate the NEC4 position, but whether there is anything wrong with it.
Design liability illustrates the point
It is sometimes said that NEC4 needs amendment because Australian design and construct contracts commonly impose fitness-for-purpose obligations. In the NEC4 Engineering and Construction Contract (ECC), the position without Option X15 is already outcome-based.
The Contractor must Provide the Works in accordance with the Scope. Where the Contractor is responsible for design, a failure to meet the Scope’s requirements may amount to a Defect even if reasonable professional skill and care was exercised.
Option X15 limits liability for Defects arising from the Contractor’s design by reference to the required standard of skill and care. NEC4 ECC does not need strengthening simply to create outcome-based design exposure. X15 is selected to limit that exposure.
Who should amend the contract?
Lawyers have an essential role in reviewing NEC4 for use in Australia, particularly on legislation, enforceability, liability, indemnities, insurance and security. But NEC4 is not only a legal document. Its provisions also govern how the project and its commercial arrangements are managed.
The programme, early warning, compensation event, Defined Cost, communications and acceptance processes all affect how the project operates. Changes to them need more than a review of legal risk.
A project manager should not amend a limitation-of-liability regime without legal input. The reverse should also apply. If an amendment changes programming, compensation events, early warning, Scope or project controls, the people who understand and operate those processes should be involved.
A clause can be legally effective and still be a poor amendment. Additional approval requirements can slow decisions. Extra procedural conditions can create arguments over compliance rather than help the team assess and manage change.
These effects extend beyond the provision being amended. Programme provisions feed into compensation event assessment. Early warning can affect the assessment of cost. Scope determines obligations and Defects. Changes to communications provisions can affect notices and time bars.
The review therefore needs to consider how an amendment will work during delivery, who will have to act and what it will do to the other processes.
NEC4 is different for a reason
NEC4 is different from the contracts much of the Australian industry has become accustomed to. Being different is one of the reasons organisations choose it. Yet the conversation too often starts with how to make NEC4 more like familiar contracts, rather than asking why it does something differently and whether that difference might be useful.
Familiar drafting is put back in. Before long, the NEC4 contract begins to look and behave much more like the contract it replaced. At that point it is worth asking why NEC4 was chosen in the first place.
The differences reflect the way NEC4 expects the project to be managed. The programme is kept current, risks are raised early, change is dealt with as it happens and decisions are made during delivery.
Before changing a provision because it looks unusual, understand what it requires and why. There may still be a reason to change it, but familiarity alone is not enough.
NEC4 was designed to be configured for different projects and jurisdictions. It was not designed to be rewritten until it resembles the contract it replaced.
Amend it where there is a proper reason.
A requirement of an Australian client is not an Australian requirement.
