Following The Chancellor Rishi Sunak’s announcement in the Spring 2021 Budget to promote an investment-led recovery for the country, the Government pledged £12bn of capital support for the construction industry via a UK Infrastructure Bank to invest in a variety of public and private sector projects. There is a lot of pressure on public sector bodies to maximise Government investment by procuring for value. As part of that responsibility the most suitable procurement route and contract type must be sought to ensure large, complex, and costly construction projects run smoothly. There is increasing popularity for early contractor involvement, known as two-stage tendering, to be used for construction contracts, which has proven levels of success for value-led project delivery.
In this article Key Account Manager Lauren Banks, with additional commentary from Ben King at EDGE, explores the key differences between the Joint Contracts Tribunal (JCT) and the New Engineering Contract (NEC) to help you determine during the tender process which route is the most suitable for your project.
How does Two-Stage Tendering work?
This call-off method offers the flexibility of an ‘open book’ approach to the sub-contracted tender lots. Contractors submit bids based on an initial project design and compete for preferred contractor status. A more collaborative undertaking than the traditional ‘single stage’ procurement method, with a pricing schedule and programme of works submission that reduces the time and resources needed to complete the bid, subsequently reducing levels of risk to the contractor. Only the preferred bidder moves to the second stage. The client then appoints the successful contractor under a Pre-Construction Services Agreement (PCSA) which essentially is an agreement between the client and the contractor to move forward with the project without a full design or fixed sum to carry out the works. It is this PCSA when using a JCT contract, that allows these works to be undertaken during the first stage of the tendering process. However, when using NEC contracts, the first stage is ordinarily undertaken using NEC Early Contractor Involvement (ECI) clauses. Broadly speaking, the JCT contract centres on liabilities and risk in the way a traditional contract would, whereas NEC commands and enables a proactive and collaborative approach to managing the contract. It is critical to understand the detail of both contract types to assess their benefits and disadvantages.
JCT or NEC: What’s the Difference?
JCT contracts have been in use since 1931, formed by the Royal Institute of British Architects (RIBA), whereas the NEC is a relatively modern approach introduced in 1993, formed by the Institution of Civil Engineers (ICE), and designed for more flexibility and collaboration between the client and the contractor. The JCT contract concentrates on the transfer of risk and liabilities, and by contrast the NEC focuses on an equal balance of risk between both parties and requires a proactive application of contract management and administration. The best option for your project will depend on the complexity of the construction project and the resource available to the project teams. The two different approaches exhibit the following fundamental differences:
Project Manager Vs Contract Administrator
A Contract Administrator is responsible for administering the contract on behalf of the client under a JCT contract and they must act as an impartial intermediary between client and contractor. Their prime focus tends to be on payment administration and advising both parties though the procedures and processes under the contract. The disadvantage of this can be that the relationship becomes contractual-led, causing the client and contractor to become polarised by the process, creating an inimical ‘them’ and ‘us’ attitude.
The NEC route sees the Project Manager taking responsibility for the contract administration. Their prime focus is to remove frustration from contract management by advocating unity between client and contractor through trust and co-operation. Sharing risks and responsibility and making decisions together under the NEC clause reduces disputes further down the line in the project lifecycle and helps teams work efficiently to deliver the project.
Under the JCT, there is a submission of a master programme, but this is not considered a contractual document, and is not reviewed or updated during the project timeline unless a time extension is requested.
However, under the NEC the programme is completely centric to the contract, as this is what forms the basis of the shared risk and collaborative approach to the management of the contract. It demands regular updates, fully accepted, and signed off by the Project Manager ahead of implementation, making the assessment of progress more transparent. Early detection of delays allows for potential problems to be highlighted and tackled to mitigate lengthy time extensions or conflicts. The NEC contract contains clauses relating to time risk allowances, compensation events procedures and ‘float,’ a term used to describe the time difference between when the contractor will actually finish work versus when they are contractually required to finish.
It is the methodical and frequent updating of the programme that makes the NEC contract an administration-intensive process, so the correct experience and resource must be assigned for this route, but it can show rewards via efficient and more streamlined project delivery.
Pricing and Payment
The JCT Contract is a traditional fixed price lump sum contract which may or may not contain quantities, whereas the NEC offers more flexibility with six different pricing options (A-F). The JCT contract contains provisional sums, an estimate of the cost of the works, whilst the NEC Contract does not. In a JCT contract a Contract Sum Analysis (CSA) takes place as part of the tender pricing review, whereas the NEC contract has an open book procedure regarding the ‘defined costs,’ those that can be recovered by the contractor, and the ‘disallowed costs,’ those that cannot be recovered.
Within the JCT contract payment is clear and is contained in one section making it easy to adhere to. However, the NEC contract refers to payment across three different locations, in clause 5, Y(UK)2 and Contract Data Part 1.
Unanticipated Ground Risk
Even the most experienced contractor can encounter unforeseen ground conditions that could not have been factored into the cost or management of a project at the start of the process. In the JCT contract ground risk is with the contractor, meaning they have no entitlement to an extension of time for completion of the works or any additional cost. However, the NEC offers a much fairer approach, and allows for provisions to be made under a Compensation Event clause, which shares the risk and costs between the client and contractor in the event of unexpected ground conditions.
Choosing JCT or NEC for Construction Projects
The Government recommends that all public sector construction contracts should be procured via NEC contracts. Its comprehensive suite of end-to-end contracts focussed on project management, helps to deliver efficiencies across the public sector by delivering projects on time, on budget and in line with the Crown Commercial Services’ principles of ‘Achieving Excellence in Construction.’
Important considerations when deciding between JCT or NEC contracts are time, cost, quality, and risk. At Procure Partnerships we have a wealth of experience in construction frameworks, and we use our sector specific expertise to help public sector organisations choose the most suitable procurement methods and contract types for each individual project. As a leading and dedicated UK procurement framework specialist, we can provide valuable support and advice to help deliver strategic value and objectives specific to each project.
Comments from Ben King, Associate Director at EDGE: “Whilst NEC is almost 30years old and has grown into a 4th generation, its adoption outside of public sector works remains limited, most notably within the ‘building’ sector where it is rarely used. Within the infrastructure sector NEC leads the way with widespread adoption by organisations such as National Highways, Network Rail, and the Environment Agency, i.e. government funded organisations.
Often referred to as a burden, NEC administration is simply a demonstration of good project management with clear timescales, roles, and processes. That said, JCT is still an important reference point for clients across the country, offering familiarity and comfort compared to an unknown world of NEC. The important point is to consider who will be responsible for managing the selected contract and their experience in doing so. With several key differences between the two, a Project Manager/ Contract Administrator familiar with requirements of the role is critical”.