INTRODUCING THE NEW ENGINEERING CONTRACT: ENGINEERING AND CONSTRUCTION CONTRACT (NEC3 ECC) FROM A DUTCH LAW PERSPECTIVE

[This publication is included in the International Construction Law Review [2017] I.C.L.R. 226 which can be obtained through: site ICLR]

ANDREA CHAO

Managing associate, Simmons & Simmons LLP (Amsterdam, the Netherlands) ([email protected])

ABSTRACT

The international experience gained with the NEC3 model makes it interesting to examine whether this model could also be used in the Netherlands and what this would require given the existing legal framework. This article reflects on such examination, by discussing the background, structure and set up of the NEC3 ECC, by providing an overview of several interesting key characteristics of the NEC3 ECC (which could also be useful for projects not based on the NEC3 ECC), and by stating adjustments that must be made to the NEC3 ECC from a Dutch legal point of view.

1. Introduction[1]

The New Engineering Contract: Engineering and Construction Contract (the third edition of which is referred to as the NEC3 ECC) was used in several prominent foreign construction projects, such as the expansion of London Heathrow Airport (terminal 2), the expansion of the Indira Gandhi International Airport in New Delhi (terminal 3), and the London Olympic Velodrome.[2] In the Netherlands this model was used for the construction of the International Criminal Court in The Hague.

The approach demanded by the NEC3 ECC is tha following its signing the contract should be a user’s guide with regard to the work and collaboration during a construction project. The contract should not end up in a drawer to be taken out only in the event of an (imminent) dispute, but should be present on a desk.[3]

The international experience gained with the NEC3 model makes it worthwhile to examine whether this model could also be used in the Netherlands and what this would require given the existing legal framework. The approach I have taken for this article is therefore a practical one.[4] I can imagine the NEC3 model being used in a construction project in which both Dutch and international parties are involved and where a more detailed explanation of the NEC3 is required. This article will provide an introduction on the NEC3 ECC, by assessing it in a general sense.

The structure of this article is as follows: in section 2 the background and structure of the NEC3 ECC will very briefly be outlined. In section 3 five of the NEC3 ECC's key characteristics that are relevant to organising a construction project or contract according to the NEC3 ECC contract model will be addressed.[5] Such characteristics could also be interesting to take into account when preparing a construction project on the basis of another type of agreement.

The NEC3 ECC also includes some elements that do not relate very well to the Dutch legal framework for construction projects; these elements will be briefly addressed in section 4. In the final section, section 5, I reflect on several conclusions.[6]

2. Background and structure of the NEC3

The NEC3 was drafted by the, originally English, Institution of Civil Engineers (ICE). The first elements of the NEC3's predecessor, the NEC, date back to 1991 and were bundled in a first set of documents in 1993. The second set dates back to 1995 and the third set (the NEC3) to 2005.[7] Since then the NEC3 was modified on several occasions, the latest being in 2013.[8]/[9] It is expected that per June 2017 the NEC4 will become available.[10]

The NEC was drafted in response to a discussion in the ICE on the question whether the model contracts used at the time gave due consideration to the interests of all parties involved in construction projects. The dominant view was that a new contractual approach aimed at stimulating the parties' collaboration and reducing the risk of confrontation by proper project management would be welcome. From this point of view, a comprehensive set of contracts was created setting out the roles of the various parties involved in a construction project.[11]

In addition, more flexibility on different levels was required, as a result of which the model contract would be better suited for adaptation to project specific needs. This flexibility is reflected in, among other things, the pricing methodology and the scope of work.

Lastly, one of the key goals was to create a contract with relatively simple and less legal wordings.[12]

This resulted in the following three characteristics, which is the basis of the NEC3 contracts:

“The NEC is a family of standard contracts, each of which has these characteristics:

* Its use stimulates good management of the relationship between the two parties to the contract and, hence, of the work included in the contract;

* It can be used in a wide variety of commercial situations, for a wide variety of types of work and in any location;

* It is a clear and simple document - using language and a structure which are straightforward and easily understood.”

Whether these goals have been achieved is still a topic of debate among authors. In particular, criticism is voiced against the sometimes unclear nature of specific provisions in the model contracts,[13] as well as against the multitude of documents.[14] I will elaborate on these points of criticism, but especially also several interesting characteristics of NEC3 ECC, in this article.

3. Five interesting characteristics of NEC3 ECC

In this section I will address five interesting features characterising the NEC3 ECC. This may inspire not only those parties that will apply the NEC3 ECC but also (in particular) those who have not yet considered using this model contract.[15] Although these characteristics are set in a Dutch project practice, these could also be inspiring in other jurisdictions. The five aspects I will discuss are, in this order: (i) the integral coordination of the various NEC3 contracts, (ii) the modular and flexible structure of each contract, (iii) the spirit of mutual trust and cooperation / partnering, (iv) the use of incentives to optimise the building process, and (v) the use of various project management tools.

 3.1 Integral coordination of the various NEC3 contracts

Several sets of general terms and conditions are available in the Dutch construction business, where each of the involved parties, such as the architect and other consultants, contractors, suppliers and maintenance parties, enter into their own and independent contractual relationship with the employer. Also in relationships based on integrated contracts, the actual work often triggers individualised/independent contractual relationships.

Projects that involve a certain degree of complexity may best be served by getting all parties around the table at an early moment in the construction process. This way, the parties can get an understanding of each other’s roles and fine tune the execution of their work and services. Depending on the actual features of a project, coordination of their collaboration or an intensified level of collaboration may be useful.[16]

Another relevant factor is that this integral approach affects practical as well as legal aspect of the project. On the one hand, this may result in the collaboration between the various parties having contracted with the employer taking the shape of a cooperation agreement, as is the case with for instance the 1999 Dutch model execution coordination agreement of VGBouw (VGBouw Model Uitvoeringsco?rdinatieovereenkomst).[17] On the other hand, it remains important that the terms of the agreements the employer enters into with the various contractors are coordinated with each other.

Experience shows that in projects where the employer uses a number of contractors, the employer often does not have a contracting policy (or a vision in one shape or another) at the start of the project, which policy displays an overarching approach and/or integral cohesion as to the manner in which the employer intends to contract with the contractors. Consequently, such vision and cohesion will only start growing (organically) during the course of the project, resulting in the wish to adjust agreed upon contracts, resulting in complications.

The wish - or perhaps more aptly put: the necessity - to adjust the contracts is fed by the invariable occurrence that during a project issues arise due to poor coordination of the rights and obligations of the various contractors. As a result, one contractor may end up having to do the same work as another, or it may turn out that no party has any actual responsibility for completing certain tasks. Likewise, it is not uncommon for employers to agree on a rather high level of liability with some contractors while other contractors (whose breach of contract may have just as huge an impact on the success of the project) agreed upon a far-reaching limitation of liability. Such situations are undesirable.

NEC3 is characterised by the integral coordination of the various model contracts, ensuring that the roles of the parties involved are properly attuned. Given the practical approach of the authors of the NEC3, it is quite remarkable that this suite of contracts does not include a model contract shaping the coordinated collaboration or a more integrated collaboration other than via option X12, which I mentioned earlier (and which can be incorporated into the various two-party contracts).[18] The feature most worthy of imitation of the NEC3 is therefore the coordination between the various contracts, while I would suggest that a multi-party contract should be considered as well.

3.2 A modular, flexible structure per contract

The NEC3 provides a modular and flexible structure for each contract: there is not a single set of standard terms only. Rather, there are model contracts for each party involved in a building project, with optional terms within those contracts.

In addition, the NEC3 provides for annexes for different subjects, allowing parties to further tailor their arrangements and providing additional flexibility to the drafting stage of the NEC3.

The advantage of this approach is that parties can tailor the contract to suit the project in question. Obviously, that objective can also be achieved by the parties jointly drafting such terms and coherent contracts as suits their needs, either separate contracts or variations on the available NEC3. However, adjusting model contracts is a risky business, because parties intervene in a coordinated set of agreements. Interfering in existing structures by third parties is risky because it can disturb the equilibrium and trigger other real risks, such as failing to stay within the spirit of the agreement.

When it comes to the structure of the NEC3, the authors have delivered fully coherent and consistent work, providing ready-made options that enable tailoring the contract to suit a specific project.

3.3 Spirit of mutual trust and cooperation / partnering

One of the key features of the NEC3 ECC is that the employer, the contractor and also the Project Manager and Supervisor will act in accordance with the agreement and in a “spirit of mutual trust and cooperation”, as noted in clause 10.1 (being the first clause). The latter phrase is a recurring theme in various NEC3 ECC clauses, such as the mutual obligation to provide one another with timely information on risks, subsequent meetings to minimise such risks, and sharing profits and losses/incentives.[19]

The theme of mutual trust and cooperation (the “working together”-concept) is clearly reflected as concept in option X12 on partnering. This option brings together the various parties that are needed for the proper performance of a project as well as the different standard contracts included in the contract suite. This option explicitly refers to the phrase “in a spirit of mutual trust and co-operation”, allows the parties to decide on the manner of collaboration by way of a separate appendix to be drafted by the parties, and sets forth the parties' obligations regarding the provision of information, instructions, early warnings, etc. The underlying idea is that the employer will include this option in each of the contracts it concludes in the context of the project.

As this option is included in the two-party agreement concluded between the employer and the contractor, the question is if and to what extent rights and obligations between all partners are established. Several legal authors take the position that it is not the case, referring to the exclusion that “this option does not create a legal partnership between Partners who are not one of the Parties to this contract.”[20] Caution is necessary from a Dutch context, as the concept of 'legal partnership' might be interpreted taking the Dutch legal concept of ‘partnerships’ (personenvennootschappen) as regulated in the Dutch Civil Code (“DCC”) into account, rather than the above mentioned explicit exclusion.

Should an employer consider using this option, it could be useful to take note of the recently published guidelines on implementing alliancing using NEC3 contract, which include best practices.[21]

The second part of the sentence forming clause 10.1 (“spirit of mutual trust and cooperation”) does give rise to a few questions: How far-reaching is this obligation? What legal concept under Dutch law is comparable? And can this obligation be enforced?

Before we address these questions, we should realise that the NEC3 ECC set of contracts were drafted from an international, but in particular a British perspective. The exact interpretation of this clause has caused quite a debate among English authors.[22] As for the enforceability within English law, judges and authors alike seek parallels with standards such as “good faith” (a standard which, unlike the Dutch principle of reasonableness and fairness (redelijkheid en billijkheid), does not automatically apply if not agreed by the parties).[23] Apparently, it is not by any means a given that if parties agree on such a standard, it will automatically also be enforceable.[24]

Thus, unlike the Dutch principle of reasonableness and fairness, an English phrase such as “spirit of mutual trust and cooperation” with in general not result in a deviation from explicitly agreed terms.[25] This is partly due to the first part of clause 10.1, that provides that parties will act as stated in the contract, which implies that parties are primarily required to (literally) act in accordance with the contract, with the derogating or supplementary effect of the principle of reasonableness and fairness expressly being subordinated.[26]

The question is whether the notion “spirit of mutual trust and cooperation” compares to the Dutch concept of reasonableness and fairness as laid down in sections 6:2 and 6:248 DCC and, if so, this notion adds no value to this Dutch concept. Or is this notion to be interpreted in a manner that creates rights and obligations in addition to this Dutch concept, and if so, which are created exactly? Would this include actual cooperation obligations, as incorporated in for instance the earlier mentioned VGBouw Model Uitvoeringsco?rdinatieovereenkomst or the 1992 model construction team agreement (VGBouw Model Bouwteamovereenkomst), which agreements specify the general obligation to cooperate into various more specific coordination, information and disclosure obligations. Parties must specify their arrangements in this respect.

Furthermore, the parties need to determine whether this notion may have a derogatory effect (derogerende werking) or an additional effect (aanvullende werking) on other arrangements between parties. The nature of the provision and the extent of the effect may be understood as a signal of willingness to actually collaborate.

Be that as it may, if parties plan to use this international contract in a Dutch legal context, the parties have to clarify their thoughts on these matters.

I do believe more attention should be paid to the aforementioned issue. Much has been said and much has been written about new relationships and respect and trust in the land of construction contract law, but somehow it is hard to avoid the impression that theory and practice are on diverging paths on this specific aspect.

Often, contracts are characterised by having a one-sided approach in favour of one of the contracting parties (quite often the employer) with regard to structuring of rights and obligations and assigning of risks, etc.

One sided contracts will lead to frustration, which will find its way out. A more balanced approach to a construction project may result in truly improved and more equal collaboration (at various levels), less frustration and, presumably, better end results (with regard to planning and budget, without disputes and all within the agreed quality parameters, etc.).[27]

3.4 Incentives used to optimise the building process

Pricing options C (target contract with activity schedule) and D (target contract with bill of quantities) provide the possibility that the contractor receives a part of the savings in case of an underrun of the original estimated budget and vice versa at the end of the project. The benefit of adopting such an approach is the incentive it creates for the contractor to work in a cost efficient manner and provide optimisations. Such optimisation (which actually reduces the contractor's turnover) is offset by higher profits for the contractor, the end result thus being positive.

The reasoning behind this arrangement is not unknown in the everyday practice in the Dutch construction industry. For instance, paragraph 35(4) of the earlier mentioned often used Dutch building terms and conditions UAV 2012 provides for the arrangement that where the amount of reductions due to variations exceeds the amount of additional work, the contractor is paid 10% of the difference between these amounts. The aim is to avoid the contractor being adversely affected by variations.

NEC3 ECC incorporates this approach, amongst other things through the option of a graduated distribution of 'profits' or 'costs' in the event of variations in the work. This allows the employer to increase the incentive for contractors to achieve savings.

Parties meaning to implement this option in practice are advised to not just consider costs but also the cost-quality ratio: providing higher quality work at the same cost level may also be considered added value to the employer.

3.5 Project management instruments

One of the key objectives of the authors of the NEC3 ECC was to incorporate a number of project management instruments in a standard contract, including the following.

The NEC3 ECC terms provide a stimulus for the contractor to give early warning on matters that could affect the project (clause 16.1). The contractor and the Project Manager will notify each other as soon as either of them becomes aware of a matter that may have consequences for the price of the work, the planning or performance of the Works already in use. Subsequently, the matter is entered in the Risk Register and may be the topic of a risk reduction meeting. Failure to meet the early warning obligation by the contractor may have consequences for the contractor's entitlement to receive compensation for such matter.[28]

Parties benefit from this early warning system by learning any (undesirable) situation that would require a solution in a timely fashion. The financial consequences are detailed in clause 61.3, which deals with compensation events. If the contractor gives notice of such and event relatively late, clause 63.5[29] provides that the contractor is only entitled to compensation of the costs it would have incurred if it had given an earlier warning (and the employer, consequently, could have opted (at an earlier moment) for a more cost-efficient solution).

This approach is in particular reflected in the ECC options C to F,[30] as the contractor explicitly is denied the right to compensation of costs incurred in case the contractor does not give early warning (clause 11.2 of each option).

Other project management tools relate to the drafting, upkeep and regular joint revision of a Risk Register, which can contribute to a more effective and timely management of risks, and the impact thereof. Please also note the arrangement under which parties provide each other with extensive insight in their planning, including available time buffers. As the NEC3 ECC also provides for detailed arrangements on the manner of making modifications and for parties to update each other, parties are constantly informed about their current mutual planning, which facilitates actual planning adjustments.

Although from a legal perspective a number of the collaboration provisions are not as clearly drafted as they should have been, it is often assumed that a strategy aimed at collaboration may contribute to the success of a project. Not every project will require such an approach, even less so if there are few complexities in the way of technology, building methods, stakeholders, budget and timing. However, this approach can have added value in complex projects.

4. Five clauses from the NEC3 ECC which require adjustment to Dutch law

In this section I will address a number of necessary adjustments to the NEC3 ECC, to be in line with the Dutch legal context, should parties choose to apply this model contract.[31]

I will not elaborate on evident adjustments that are necessary for any non-Dutch contract, such as specific references to Dutch law and correct references to Dutch legal concepts, a number of which have already been mentioned in this article (including the bankruptcy/winding-up provision of clause 91.1).

I will, however, address the following five adjustments: (i) using clear wording, (ii) incorporating specific requirements in response to Dutch legal requirements, (iii) clarification on contractor liability for design defaults discovered post Completion, (iv) clarifing the consequences of failing to comply with (administrative) procedures, and (v) creating clarity about the applicability of section 7:753 DCC (circumstances that increase costs) given the lump-sum approach.

4.1 Clear wording

As noted earlier, one of the aims of the authors of the NEC3 model was to draft a model contract using straightforward language and 'less legalese'.[32] Whether the authors succeeded has been called into doubt by authors on this subject.[33]

The authors' choice to use 'straightforward' language in the NEC3 ECC has not achieved the objective in all instances, since some of the terminology used is simply vague. I have already pointed out some examples, such as the question of the scope of the phrase “spirit of mutual trust and co-operation”, and the contractual interpretation (including third-party effect) of the partnering option provided by clause X12.

 Another example relates to the applicable standard with regard to Defects if parties (deliberately) do not agree on option X15 or in fact agree on different standards. Under this option the contractor is not liable for Defects in the Works due to its design, to the extent it is able to prove that it used reasonable skill and care to ensure that its design complied with the Works Information. If the provisions regarding the work to be performed by the contractor state that the design must be fit for purpose, which is a stricter standard,[34] the question may arise whether option X15 has any value.[35] At the same time the question arises which standard will apply to the design works if neither the standard from X15 nor a fit for purpose provision is included. In a Dutch context the norm of a reasonably skilled and reasonably acting professional member of a professional group would be the apparent choice.[36] If the contractor corrects a Defect for which it is not liable under the contract, this constitutes a compensation event.

Also consider the following as an example of vague wording: how would the parties deal with the consequences of new or changed risks? Clause 80.1 lists the employer's risks. Clause 81.1 provides that any risks not carried by the employer are carried by the contractor until the moment the Defects Certificate has been issued. Clause 83.1 provides that “each party indemnifies the other against claims, proceedings, compensation and costs due to an event which is at his risk”.

Pursuant to clause 16.4, parties are required to maintain a Risk Register throughout the project. The first question which arises is whether clause 16.4 (additions to the Risk Register) is in fact intended to achieve a change of the rights and obligations agreed upon, thereby latching on to clause 80.1 (which clause actually does not make explicit reference to the Risk Register, but merely refers to the risks as included in the Contract Data). Or is the principal aim of clause 16.4 the incorporation of a project administrative obligation, as Eggleston has argued?[37]

There are, in my view, two options where the contractor is entitled to compensation in the event of a new or modified risk: either through a change to the Works Information[38] or through a change to the list of risks in the Contract Data[39] (contrary to Eggleston). However, there are no explicit provisions for either option in the contract, so they remain a possible source of (interpretation) discussion.

The solution to such interpretative shortcomings is that the parties clarify the various provisions as well as the correlation between provisions.

4.2 Incorporating specific requirements in response to Dutch legal requirements

I noted earlier that the NEC3 ECC does not contain any explicit provision that parties are required to comply with applicable laws and regulations.

In a number of cases it may be recommended not only to include a safety-net provision, but also to incorporate specific requirements for the purpose of legal requirements. Examples that come to mind in this context are the recent developments concerning (and following from) the Dutch Labour Market Fraud (Bogus Schemes) Act (Wet Aanpak Schijnconstructies) and the Foreign Nationals (Employment) Act (Wet Arbeid Vreemdelingen).[40] I recommend that parties to a contract specify in great detail which obligations the contractor (and any of its (sub)contractors) must comply with in order to prevent breaches of such legislation. It is equally recommendable in view of the non-culpability defence raised against the employee suing the employer for civil-law vicarious tax liability under the Labour Market Fraud (Bogus Schemes) Act.[41]

4.3 Clarification on contractor liability for design defaults discovered post Completion

The NEC3 ECC provides for several options (X15 (Limitation of the contractor’s liability for its design to reasonable skill and care) and X18.3 (Limitation of liability)) to limit the contractor's liability for design defaults. Option X15 entails that the contractor is not liable for Defects in the Works due to its design so far as it proves that it used reasonable skill and care. X18.3 provides that the contractor's liability for Defects which are not listed in on the Defects Certificate is limited to a specified amount.

Both options contain explicit limitations on liability according to the respective headings (although contracts tend to stipulate that headings do not affect the interpretation of the contract).

However, what liability regime applies for design defaults, if parties fail to incorporate either option? After all, the construction of the contract might lead one to infer that failure to include either option (or both) will give rise to unlimited liability.

As noted in footnote 34, the NEC3 ECC, once implemented, is a mixed agreement within the meaning of section 6:215 DCC.[42] Construction contracts are subject to a clear limitation of liability (that is, no liability after delivery with the exception of hidden defects, see section 7:758 DCC; or X18.3, which limits liability to a specified amount) linked to the moment of Completion (section 7:758 DCC). No such limitation of liability is included in the title for the contract for services (overeenkomst van opdracht), in which event the parties rely on the general liability provisions of Book 6 of the DCC.

Depending on which doctrine one adheres to, section 6:215 DCC[43] may give rise to varying conclusions on the question of whether this limitation of liability after Completion also applies to design work in a mixed agreement setting.[44] Leaving the various views on this doctrine for what they are, I will confine myself to observing that (depending on the applicable doctrine) the limitation of liability post Completion based on the DCC could very well apply to the design work (as could be according to the ‘cumulation doctrine’ (cumulatietheorie)), the consequence being that the NEC3 ECC may have a different starting point than Dutch law on this issue.

4.4 Defining the consequences of failing to comply with (administrative) procedures

The NEC3 ECC was designed with practicability in mind. The contract model provides for a number of administrative procedures, the aim of which is for the parties (the employer in particular) to know well in advance the status of the project and to be able to adjust where needed.[45]

 The NEC3 ECC includes an administrative procedure for compensation events. The procedure entails, among other things, that the contractor must give the employer timely notification of compensation events. This notification must include information regarding the impact on the prices, as stipulated in clause 65.4 of the main option clauses A to D and clause 65.3 of the other two main option clauses.[46] This does not apply if such prices cannot be determined because the effects of the compensation event are too uncertain to be forecasted reasonably, according to clause 61.6.

In addition, in the event of compensation due to an instruction, the Project Manager will notify the contractor that the event is a compensation event (as well).

According to clause 61.7, a compensation event cannot be notified after the defects date,[47] restricting the contractor in making a claim for compensation.[48] The wording does not specify which party should give such notification.

It is quite conceivable that where parties face a problem, the contractor starts working on a solution and only later realises that it is entitled to compensation for implementing the solution. It is likewise quite conceivable that the Project Manager does not notify the contractor in accordance with the administrative requirements of a situation that a compensation event was triggered and what the impact on pricing is. Given the current wording of the contract, the employer could take the position that the contractor forfeits any entitlement to compensation if the employer failed to comply with the obligation to issue the notification, in accordance with the administrative requirements, prior to the defects date. The question is whether such position can be upheld under Dutch law, partly from the point of view of the principles of reasonableness and fairness, unjust enrichment (ongerechtvaardigde verrijking) and forfeiture of rights (rechtsverwerking)[49] or abuse of power by the employer by taking such position.[50]

Ideally, the parties would agree on clear consequences for any party failing to comply with such administrative obligations. Such practice would also be highly recommended in respect of all other obligations, although it is the author's personal experience that such approach is not taken (structurally) in every project/construction contract.

4.5 Correlation between section 7:753 DCC (circumstances that increase costs) and the lump-sum approach

Pursuant to section 7:753 DCC, any circumstances that increase costs are borne by the employer, if such circumstances arose or became apparent after entering into the contract, these circumstances are not attributable to the contractor, and the contractor, in determining the pricing, was not obliged to take the likelihood of such circumstances into account.

The NEC3 ECC is based on the premises that parties tend to work on the basis of lump-sum prices and the contractor is entitled to additional payment in specific events only (such as compensation events). The contract does not provide in express terms that the contractor is not entitled to compensation unless the contract so provides.

From a Dutch point of view, a number of compensation events mentioned in clause 60.1 (compensation events) would be considered circumstances that increase costs. Such events include specific weather conditions or physical conditions (clause 60.1 (12)) or risks which are explicitly allocated to the employer in the contract (clause 60.1 (14) – following which risks that are not explicitly allocated to the employer, are allocated to the contractor, as laid down in clause 81.1).

The question is whether this serves to exclude the provision of section 7:753 DCC, thus giving this contract the lump-sum character the employer is likely to presume it has (if Dutch law applies).

A study of case law shows that parties wishing to deviate from the provision relating to the legal arrangement on circumstances that increase costs are required to incorporate an explicit stipulation to such effect.[51] Simply agreeing on a certain risk allocation is not sufficient.[52] Given this case law, I would recommend that parties wishing to exclude the provision of section 7:753 DCC to do so explicitly and for specific events.

5. Conclusion

The authors of the NEC3 ECC have opted for an innovative approach to construction projects, encouraging collaboration. As a consequence, the NEC3 ECC offers a range of interesting options, which deserve attention and consideration also in a Dutch context. Key aspects are: the integral coordination of the various NEC3 model contracts, the modular and flexible structure of each contract, the notion of cooperation laid down in the very first clause of the contract (“spirit of mutual trust and cooperation”), the incorporation of incentives to optimise the construction process and the usage of various project management tools to improve construction efficiency.

If an employer considers implementing the NEC3 ECC in a Dutch project, it should be aware of the fact that this contract does require some modification. On the one hand, some of the changes required for the contract to be usable in a Dutch legal context relate to the inclusion of references to Dutch legislation, Dutch legal concepts and Dutch standard boiler plate provisions. On the other hand, there are clauses in the contract that require clarification, the contract must contain specific requirements in response to Dutch legal requirements, the issue of contractor liability for design defaults discovered post Completion needs be clarified, the parties should define the consequences of failing to comply with (administrative) procedures and, lastly, parties should agree on the applicability of section 7:753 DCC (circumstances that increase costs) in view of the lump-sum approach.

[1]       This article is an adaption, update and shortened version of my contribution to collection of articles (liber amicorum) presented to Arent van Wassenaer at the occasion of his departure from Allen & Overy LLP.[1] Arent is a lawyer known for his innovative 'best for project' approach to construction projects. An approach that resonates in the New Engineering Contract: Engineering and Construction Contract. The source reference for this article is: Andrea Chao, “Een kennismaking met het New Engineering Contract: Engineering and Construction Contract (NEC3 ECC)” in M A B Chao-Duivis, J M Hebly, E J Blom (red.), Van het Gebaande Pad, IBR (Den Haag 2016) pp 1 to 26, https://www.ibr.nl/publicaties/ ibr-publicaties/van-het-gebaande-pad/ The author would like to thank Rob Horne, partner at Simmons & Simmons LLP, for sharing his extensive experience on NEC3 projects while preparing this article.

[2]         An overview of dozens of projects procured on the basis of NEC3 ECC, or its predecessors, can be found on <https://www.neccontract.com/Case-Studies>.

[3]         See for the same approach the guidance notes to the NEC3 ECC contract.

[4]         Please note that definitions (ie: terms with a capital, which are not the first word of a sentence, nor names, or terms included in italics) used in this article refer to definitions defined in articles 10, 11 and other articles of the NEC3 ECC contract.

[5]         It is not my intention to provide an academic and/or exhaustive discussion of this model.

[6]      Definitions used in this contribution refer to the definitions used in the relevant contracts.

[7]         B. Eggleston, The NEC 3 Engineering and Construction Contract: a Commentary, (Great-Britain 2006) (hereafter: “Eggleston 2006”), p. 1.

[8]         This contribution is based on the NEC3 ECC of April 2013, being the most recent version available at the time of the completion of this article.

[9]         For a review of the international use of the NEC3 ECC on several key characteristics, see N. Gould, “NEC Contracts: programming, project management and pricing - have they stood the test of time”, Society of Construction Law, [January 2015] D177 (hereafter: “Gould 2015”).

[10]     The NEC4 is expected to providing updates on the existing contracts as well as an added NEC3 Design Build Operate Contract according to < https://www.neccontract.com/NEC4-Products/NEC4-Contracts/NEC4-June-2017-Edition-complete-family-of-contrac>.

[11]        M. Rowlinson, A Practical Guide to the NEC3 Engineering and Construction Contract, (Great-Britain 2011) (hereafter: “Rowlinson 2011”), p. 9 - 10.

[12]        Eggleston 2006, p. 2 - 3.

[13]        See, for instance, Eggleston 2006, p. 4; Rowlinson 2011, pp. 10 - 11; M. Barlow, “The NEC Construction and Engineering Contract: to amend or not to amend?”, [May 2011] Society of Construction Law D123; and J. Broome, NEC3: A User’s Guide, (Great Britain 2013), pp. 54 - 58.

[14]        See, for instance, A.G.J. van Wassenaer and C.H.J. Thomas, www.werkinuitvoering21.com, Interactief naar een nieuwe generatie bouwcontracten (preliminary report for the Dutch Association of Construction Law nr. 36), (The Netherlands, 2009) (hereafter: “Van Wassenaer and Thomas 2009”), p. 91.

[15]        The choice for the topics below has been inspired not only by the issues that struck the author’s attention, but also by the aspects identified as learning points in Van Wassenaer en Thomas 2009, p. 91.

[16]        A number of the basic principles underlying this type of contract are outlined in: M.A.B. Chao-Duivis, Het bouwteam model. Een studie naar de juridische vormgeving en het functioneren in de praktijk, (The Hague 2012) (hereafter: “Chao-Duivis 2012”), p. 11.

[17]        For more background information on this model, please see for example: S. van Gulijk, “Samenwerking in meerpartijenverhoudingen in de bouw: stand van zaken en praktische tools”, [2016] Contracteren, p. 10 ff.; M.A.B. Chao-Duivis and A.Z.R. Koning, Veranderende rollen: een inleiding in nieuwe contractvormen in het bouwrecht, (The Hague 2001), p. 106 - 107; P. van Schravendijk, “Bouwteams en hun contractuele aansprakelijkheid”, [1986] Tijdschrift Bouwrecht, p. 9 ff.

[18]        The shortcoming of an overall arrangement of this kind has been pointed out within the Dutch context of the construction team: Chao-Duivis, p. 223 ff.

[19]        More extensive information can be found in: L. Cheung, Research into the influence of mutual trust between the Client and the contractor on the efficiency and the effectiveness of the change management process for complex D&B infrastructure projects using the UAC-IC 2005: Lessons learned from comparison between the UAC-IC 2005 and the NEC3 ECC and the FIDIC Yellow Book (thesis at the Delft University of Technology) (2015), p. 42.

[20]        Thomas 2012, p. 56, Rowlinson 2011, p. 233, Eggleston 2006, p. 42.

[21]        Infrastructure Client Group, Improving infrastructure delivery: alliancing code of practice – guidance on implementing alliancing using NEC3 contracts, (November 2016). Available through:

<https://www.neccontract.com/NEC/media/NEC/Digital%20documents/Guidance-on-implementing-Alliancing-using-NEC-contracts.pdf>.

[22]        See, for example, Eggleston 2006, p. 85; Rowlinson 2011, p. 21-22; Thomas 2012, p. 10-13.

[23]        Eggleston 2006, p. 84 - 85; Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200. See also: J.M. van Dunné, “On a Clear Day, You Can See the Continent - The Shrouded Acceptance of Good Faith as a General Rule of Contract Law on the British Isles”, [2015] Construction Law Journal, p. 3 - 25.

[24]        Thomas 2012, p. 11.

[25]        Mears Ltd v Shoreline Housing Partnership Ltd [2015] EWHC 1396 (TCC).

[26]        Eggleston 2006, p. 85.

[27]        According to Van Wassenaer in, amongst others, Van Wassenaer and Thomas 2009, p. 13-14. Also see: Chao-Duivis 2012, p. 14.

[28]        According to Thomas 2012, p. 51 and 285, and Eggleston 2006, p. 117 - 118, among other authors, parties should read this clause 16 in conjunction with clause 63.5 (see also footnote 37), which clause shows that the contractor is entitled to receive compensation of the costs it incurred, only if it has given an early warning (and consequently the employer could have opted earlier for a more cost efficient solution). This is in particular relevant as pricing options C - F, which will be discussed below, provide the restriction that the costs incurred by the employer on account of the contractor's failure to give an early warning are to be compensated by the contractor (each time clause 11.2(25) of the option in question).

[29]        Clause 63.5 provides that if the Project Manager has notified the contractor of its decision that the contractor did not give a warning of a compensation event in time, which an experienced contractor could have given, the event is assessed as if the contractor had given the warning in time. The impact of this clause is that the parties effectively start from the assumption that the employer could have opted for other (cheaper) solutions that were available at the time.

[30]        ECC Option A provides for a priced contract with activity schedule, ECC Option B for a riced contract with bill of quantities, ECC Option C for a target contract with activity schedule, ECC Option D for a target contract with bill of quantities, ECC Option E for a cost reimbursable contract and ECC Option F for a management contract.

[31]        The choice for the topics addressed was inspired primarily by issues that struck the author's eye. The author in no way aims to produce an exhaustive list of issues that require adjustment.

[32]        Is such a suggestion not necessary in a broader sense? I believe it is. It is my impression that the cause for complex wording tends to be (as contradictory as this may sound) the fact that drafting simple, easily understandable texts takes more time (and money), attention and the collaboration of the other party (and its legal advisor). A well-written and soundly structured agreement requires that its author, prior to drafting, grasps the meaning of commercial agreements and their specific legal implications. It also requires that parties do not shy away from "abandoning a familiar model" and instead consider the actual wishes and needs of all parties involved. However, practice shows that parties (or their advisors) start drafting agreements by modifying an existing (model) document without ensuring that the structure of that document matches the envisioned agreements and that the wording subsequently used is easily understood and suits the parties' needs.

[33]        Please refer to footnote 11.

[34]        Or another standard from which the applicable deviating standards ensue. See also Barlow 2011, p. 6.

[35]        Thomas 2012, p. 71 and Eggleston 2006, p. 48.

[36]        Under the NEC3 ECC this will usually be a mixed agreement as meant in section 6:215 DCC (comprising of a contract for services and a construction contract). For such contract the norm applicable to the design work is likely to ensue from the DCC title regarding the contract for services. Also please refer to footnote 78. Pursuant to section 7:401 DCC the contractor must exercise the care of a good contractor, or as explained in relevant case law: it must conduct its work as a reasonably skilled and reasonably acting member of a professional group would (Dutch Supreme Court decision of 9 November 1990, NJ 1991/26 (Speeckaert vs. Gradener) and, for instance, applicable to architects given the decision of the Dutch Midden Nederland District Court of 12 March 2014, ECLI:NL:RBMNE:2014:1041.

[37]        Eggleston 2006, p. 111-112

[38]        Please note that each of the main option clauses C to F includes in clause 11.2(25) a limitation to the effect that the contractor is not allowed to charge costs it incurred after failing to give an early warning (the requirement to give early warning ensuing from - for example - clause 16.1). A subsequent question is whether main option clauses A and B entitle the contractor to full compensation of costs, including costs relating to the failure to give an early warning. The reason being that only the other main option clauses provide that in such an event the contractor is not entitled to compensation of costs caused by the failure to give an early warning. There is no clear reason for the absence of a similar clause in main option clauses A and B: on the one hand it may (inadvertently) be overlooked when drafting the NEC3 ECC, or its absence may be deliberate. Clause 63.5, in conjunction with clause 16.1, is a provision along similar lines, so it appears rather tricky to make a successful claim for full compensation. Thus, it seems unlikely that the reason underlying this discrepancy between option clauses A and B and C to F was deliberate.

[39]        This option requires the provision of clause 83.1 to be interpreted as the compensation for costs incurred by the other party (schadeloosstellen). According to the Wolters Kluwer Juridisch-Economisch Lexicon (Legal and Economic Dictionary) as at the time of writing this contribution, "to indemnify against" means vrijwaren, while "to indemnify" means schadeloosstellen. An opposite view is held by J. Leedekerken, “Nakoming van een vrijwaring in een overnameovereenkomst - show me the money?”, [2014] Contracteren, p. 106. What does follow from this article is that the definitions of the two terms are not clear-cut and therefore open for debate.

[40]        See, for example, the Dutch Supreme Court decision of 11 December 2015, ECLI:NL:HR:2015:3568, on the lawfulness of an indemnification clause in the event of administrative fines for breach of the Foreign Nationals (Employment) Act.

[41]        Sections 7:616a (sub-section 2 on non-culpability) and 7:616b (sub-section 3 on non-accountability) DCC.

[42]        Please refer to footnote 43.

[43]        This clause reads: "Where a contract falls within the description of two or more types of contract specifically regulated by law, the rules applicable to each apply to the contract concurrently, except to the extent that the provisions are not easily compatible or that their necessary implication, in relation to the nature of the contract, makes them inapplicable." Translation by H. Warendorf e.a., Warendorf Dutch Civil and Commercial Law Legislation (Deventer).

[44]        For an explanation of the various doctrines on the applicability of rules of law, which in principle apply to a certain type of contract, to parts of mixed agreements (gemengde overeenkomsten) that in fact do not relate to that type of contract, see E. Bruggeman, De koop-/aannemingsovereenkomst in breed perspectief, (The Hague 2010), p. 60 - 62.

[45]        A few authors even label them 'administrative overload': C. Ennis, “Financial claims under NEC3 contracts: an overview”, [December 2010] Society of Construction Law, D117, p. 16.

[46]     Please refer to footnote 28.

[47]        Eggleston 2006, p. 251-252.

[48]        Thomas 2012, p. 270.

[49]        M.J. van Laarhoven, “Unclean hands in the Netherlands” in: Beginselen van het contractenrecht, (Deventer 2000), p. 67 ff.

[50]        Parallels can be drawn with the nemo auditur doctrine, which is not recognised as such in Dutch law. See also J.H. Ermers, “Rechtsverwerking en het fait accompli”, [2014] Tijdschrift voor de Procespraktijk, p. 184 - 185.

[51]        Quite explicate actually, as Dutch The Hague Court of Appeal held in ground 6.2 for its ruling of 15 March 2011, ECLI:NL:GHSGR:2011:BP7956: “A lump-sum stipulation is part of the price (the purpose of the stipulation being that this price does not change) and clause 7:753 DCC relates to risks the contractor, in setting the price, in fact needed not take into account. In principle, contracting parties should feel justified to assume that where a party means to exclude the application of clause 7:753 DCC, it incorporates an explicit clause to such effect in the contract in addition to the lump-sum stipulation.” This is in line with the ruling of the same Court of Appeal on paragraph 47 of UAV 2012 (circumstances that increase costs), which, given, the similarities lends itself to a comparison; Dutch The Hague Court of Appeal, 31 January 2013, ECLI:NL:GHSGR:2012:83.

[52]        By analogy with paragraph 47 UAV 2012 (circumstances that increase costs) seen in conjunction with the Dutch The Hague Court of Appealing ruling of 31 January 2013, ECLI:NL:GHSGR:2012:83.