The publisher of the NEC contract is starting a campaign to reduce the misuse of Z clauses in NEC contracts, inserted to amend the terms of contracts to suit clients’ needs.
The NEC Users Group’ says it’s taking action after hearing consistent feedback from “disgruntled” clients and contractors that Z clauses – otherwise known as amendments – are “counteracting the effectiveness of the NEC approach.”
It has already held a webinar on the issue – available here – and will follow up with an FAQ document, a further guidance document, and possible a training module.
Rob Gerrard, secretary of the Users’ Group, told CM that some Z clauses cut across the fundamental tenets of the NEC suite of contracts. “I’ve had first hand experience of this, I’ve seen a client delete the entire Section 6 on compensation events in the Engineering and Construction Contract.
“If the drafters of the contract actually took any notice of the users within industry and made root and branch alterations themselves then the use of supplementary clauses would be less prevalent.”
Peter Gracia, Gracia Consult
“These are essentially the rules on client change management. The client said he did it because he wanted a lump sum fixed price contract with no claims, but it stifled his ability to order additional work. I’ve also seen clients delete ECC Section 16, which deals with Early Warnings – the client said it was because they didn’t want any claims from the contractor.”
Gerrard said he had seen wholsesale changes in Z clauses from large, experienced clients as well as less sophisticated clients. “People don’t think through what they’re trying to do. We’re not trying to ban Z clauses, we just want people to tread carefully and execute them professionally.”
However, contracts consultant and RICS panel adjudicator Peter Gracia FCIOB, of Gracia Consult, who has extensive experience of NEC contracts, says that clients are compensatign for ambiguities in the NEC’s drafting and guidance.
“Many users of NEC3 consider the use of Z clauses as essential to try to make the contract work in the manner users actually want. If the drafters of the contract actually took any notice of the users within industry and made root and branch alterations themselves then the use of supplementary clauses would be less prevalent.”
One common source of Z clauses, he said, was the NEC’s approach to weather events, which offers contractors both extra time and compensation, while the JCT position only offers extra time. The JCT also leaves it up to the contract administrator to determine whether or not a weather event is “exceptional”, while the NEC system relies on Met Office data.
Gracia explained: “Employers do not like to pay contractors for the weather risks as well as giving them additional time which might also relieve them of the secondary option delay damages. That is not sharing the risk of an event over which the employer has no control so they make amendments. Under the NEC3 weather data and measurements are often recorded at sites 10 or 20 miles away from the construction site itself. You may not have a flake of snow on the site but 20 miles away may be covered in the stuff or vice versa. How does this make any sense?”
“The issue all users can face is that if a Z clause is wrongly inserted, it can make the contract ambiguous. As a result, good project management can be hampered and the project is likely to cost more, or take longer to complete.”
Rekha Thawrani, NEC
Gracia added: “I had to chuckle when the NEC press release said the addition of Z clauses is making the contract ambiguous. Read any of the leading text books or the Guidance Notes on the NEC3 to see ambiguity.”
“My current record on one project using the NEC3 is nine adjudications as a party representative. That is a shocking indictment of the form which is promoted for use by the public sector.”
The NEC Z clause webinar, which featured Gerrard and Peter Higgins, previous chairman of the drafting committee, discussed the need for Z clauses, the types available and the impact of incorrect on NEC contracts.
in the press release, Rekha Thawrani, general manager for NEC, commented: “The biggest problem with the misuse of Z clauses is that when they’re used incorrectly, they change the risk profile of a contract. The issue all users can face is that if a Z clause is wrongly inserted, it can make the contract ambiguous. As a result, good project management can be hampered and the project is likely to cost more, or take longer to complete.
“NEC contracts have a balanced risk allocation to tailor to almost any circumstance, which means that if you don’t like the balance, then both parties should reconsider the contract you’re using, before adding clauses. If an additional clause does need to be inserted then the client should ensure that it complements the existing contract terms, avoids duplication and what’s more is flexible, clear and stimulates good project management.”
“Clauses should only be inserted if they define what is required and should be drafted by someone with experience of NEC, who understands how the clauses will affect the rest of the contract.”
