JCT and NEC contracts are standard form of contracts. Both contracts provide a variety of options that suit the needs and requirements of clients (employers). However, you do need to understand project requirements and the level of control required by the client when selecting a contract form and a procurement route.
This article provides an overview of the fundamental differences between the contracts and their suitability for different types of projects. We’ve also included a review of the suitability and mechanisms for selecting the most appropriate contract form for your project.
So, what about the Contract Forms?
The NEC was published in 1993 and is designed for both the UK and international community while the JCT standard form dates back to 1931. JCT is seen as the ‘traditional’ form of contract. The NEC on the other hand is formed on a contemporary requirement for clarity, flexibility and collaboration. Essentially, the NEC strives to provide a fair balance of risk between parties and takes a proactive approach in effective contract management and administration. Conversely, JCT maintains a comparatively traditional (master and servant) approach that concentrates on the transfers of risks and liabilities under the contract.
Main differences under the Contract forms
Project Management and Contract Administration
Under JCT Contracts, the Contract Administrator (CA) typically administers the contract on behalf of the employer and has a duty to act impartially between parties. The primary emphasis of the CA is on payment administration and guiding the parties though the procedures and processes under the contract.
This can lean towards a contractual attitude that fosters an adversarial relationship between the parties.
Under the NEC, the Project Manager (PM) fulfils responsibility for contract administration. The PM assumes a proactive project management and collaborative role with a pre-requisite to act in a spirit of mutual trust and co-operation with both the developer and contractor. At its outset, this fosters the optimisation of project delivery while aiming to reduce disputes. Responsibility under NEC 3 is shared and not merely transferred and thereby ensures an effective team dynamic while maximising the level of administration toward efficiency.
Time-Programme and Progress
The programme requirement under NEC is often described as the ‘beating heart’ of the contract. Balancing the risks between the parties – the underlying intention of the NEC Contract – can be burdensome in terms of administration. It’s therefore important that both parties allow sufficient resource for contract administration.
The contract requires regular programme updates, with the PM’s approval required as a prior condition for implementation. JCT on the other hand pays little attention to the programme and has little requirement for regular submission of an updated programme for approval. Instead, the JCT’s emphasis is on the submission of a master programme and only a revised programme if an extension of time is requested.
Many argue that the more pro-active, ‘hands-on’ attitude under NEC improves project delivery and programme. The NEC Contract provides an efficient tool for managing the programme. The accepted programme is used to assess delays and extension of time under the contract in real time under the compensation events procedures, which often reduces conflicts between the parties as issues are highlighted early.
Pricing under the contract forms are different.
The flexibility of the options (A to F) under NEC provides for a more modern set of approaches, whilst JCT maintains a relatively firm stand on pricing options.
For example, JCT is mostly based on lump sum contract with or without quantities while NEC provides an array of options with six pricing options. The various pricing options are detailed below:
|With quantities (Lump sum contract) The Employer provides drawings and bills of quantities that specifies the quality and quantity of work||Option A- Priced Contract With Activity Schedule|
|Without Quantities (Lump sum contract)
The Employer provides drawings together with a description of works and either a specification or work schedules
|Option B – Priced Contract With Bill of Quantities|
|With Approximate Quantities (Measurable)
The Employer provides drawings and approximate bills of quantities.
|Option C – Target Contract With Activity Schedule|
|Contains Provisional Sums||Option D – Target Contract With Bill of Quantities|
|Option E – Cost Reimbursable Contract|
|Option F – Management Contract|
|NEC Contract does not include provisional sums|
Figure 1. Pricing Options under the Contract Forms
Both contracts require interim payments for any amount due under the contracts. Under JCT the CA has 5 days to issue the interim payment certificate against 7 days for NEC, following which payment is affected by the employer within 14 days unless a pay-less notice is issued. Both NEC and JCT take account of the provision of the Housing Grants and Land Regeneration Act 1996. The following diagram illustrate the provisions under the contracts for payment administration.
Figure 2. Payment Procedure under JCT
Figure 3. Payment Procedure under NEC
Additional Time and Money
Both the JCT and NEC Contract forms contain mechanisms and events that entitle the Contractor to claim for additional time and money. An event providing an entitlement to additional time and money is defined as a Relevant Event under JCT and a Compensation Event under NEC.
JCT contiguously deals with time and money separately under the contract and therefore an extension of time does not necessarily provide an entitlement to additional money. On the other hand, the decision of the PM under NEC may directly lead to both time and money benefits. Both contracts have a common condition of precedent that waives the contractor’s entitlement to additional time or money if the event in question is not notified in accordance with the contract conditions.
Both the JCT and NEC Contract allow the PM/CA to issue instructions for carrying out variation work. JCT Contracts contain provisions that enable the Contractor to reasonably reject the instructed works. The NEC again takes a proactive approach making the PM’s approval a prior condition for implementation or the variation. Under the NEC Contract form, early and quick agreement for variations (compensation events) is encouraged which removes costly delays associated with disagreements and disputes on commercial matters.
Unforeseen Ground Conditions
An example of how the NEC Contract form is more balanced is that NEC Contracts provide that the discovery of unexpected ground conditions, which even an experienced Contractor could not have foreseen at the date of the contract, constitutes a Compensation Event. JCT Contracts have no equivalent clause, which therefore mean that the risk for unexpected ground conditions on site is a Contractor’s Risk and the discovery of any unexpected ground conditions will normally mean the Contractor has no entitlement to an extension of time for completion of the works or any additional cost.
Type of Scenario that are best suited for the Contract Form
The JCT form of contract is typically better suited in situations where the employer wants more control over project delivery. The commercial development community generally utilise the JCT form of contract since it provides a comprehensive balance of risk between Employer and Contractor.
Conversely, the NEC is the contract of choice in the public sector and is used by most national and local government bodies and agencies following the UK Cabinet’s Office endorsement in 2008. NEC provide more of a collaborative approach to contracting but does hold a higher level of risk in terms of its administration. The NEC is therefore more suitable for major infrastructure and building contracts that are over £5m, while JCT is better suited for projects between £5 million and £25 million. The choice of contract is closely linked to the value of the work to be undertaken as is illustrated in the below figures.
Figure 4. Value of Work by Contract Form (NBS 2018)
Administration Cost under the Contract Forms
From a practical perspective, the level of contract administration is proportional to the complexity of the contract since both contract forms have administrators that acts as ‘guardians’. The industry is however more used to the JCT culture and its contractual nature that has been around for a long time and it is therefore often favoured. The NEC requires investment in efficient project management, resources, training and systems for it to work effectively. Despite this, the NEC promotes trust and collaboration between parties at the core of its contract and the benefits – its reduction in the likelihood of post contract claims and expensive arbitrations and court cases – are argued to outweigh the initial investment.
Questions to ask prior to selection of a contract, the procurement route and benefits for the project.
The choice of procurement and the basis of your contract selection are dependent on the way that the developer wants the construction team to operate. Before selecting the most appropriate contract, answer the following questions:
- Time: Which contract is more likely to ensure that the project is finished on time or at least based on the requirement of the employer?
- Cost: Which contract would provide better value and more cost certainty or provide the most competitively economical solution?
- Quality: Which contract will bring a greater value?
- Risk: Do I want to transfer the risk or share the risk?
Irrespective of the contract form chosen, it’s essential to consider the experience and competence of the developer’s team in dealing with the contract form. It is undeniably risky to venture blindly into a new contract form without experience in administering that contract and this is the key to selecting the right contract form for your project.