Will the adoption of NEC4 improve outcomes for Network Rail in CP7?

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Control Period 7 (2024 - 2029 ) is fast approaching and work has already started across the industry to prepare for the next five years of mainline infrastructure spend across the UK.

With over £40 billion of spending likely to be on offer, is it time to consider how the consistent application of a recognised standard form of contract may improve outcomes for Network Rail and suppliers?

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The devolution of Network Rail into regions has led to a fragmented approach to contracting format with ICC, NEC and bespoke Network Rail forms being used across the country.  

As enhancements and renewals continue in haste, a consistent approach using a collaborative form may give the best chance for the industry to deliver on the programme and efficiency targets set by the Government.

Do Network Rail not already use NEC?

Network Rail first let NEC3 based contracts back in 2014, with over £1.2bn of spend being managed across 500 projects in the South-East of England. The NEC suite of contracts is established on the principle of inspiring and encouraging best practices in project management within a partnering environment, recognising that collaboration and transparency is the most efficient manner in which to deliver infrastructure projects.

Since then, the NEC suite has become widely adopted across certain Network Rail regions but rarely used in others, causing a disparity in how Network Rail procure and manage some of their largest infrastructure projects.

Fast forward four years, Network Rail chose to procure over £1.8bn of framework contracts to deliver and maintain the digital train control systems on its East Coast mainline through NEC4 contracts.

Design-only and design-build–maintain ‘call-off’ contracts were let via the framework under the NEC4 Professional Service Contract (PSC) and NEC4 Design Build and Operate (DBO) contract respectively.

Speaking to the NEC, Philip Bennett, commercial director for Network Rail said, ‘The decision to use NEC4 contracts was based on a desire to use a form of contract that was well recognised, as well as being highly regarded by the supply chain.’

He added NEC4, ‘reflected our approach of putting long-term, collaborative relationships at the heart of the delivery strategy for the East Coast mainline.  For the first time, we were also keen to include a design, build and maintain contract and the NEC4 DBO allows us to do this.’

What is the difference between NEC3 and NEC4?

First published in June 2017, the changes from NEC3 to NEC4 have been widely described as ‘evolution, not revolution’.  There are new contracts and new features that include:

New Contracts within the family;

• Design-Build and Operate Contract
• Professional Services Subcontract
• Term Service Subcontract
• Dispute Resolution Services Contact

New features within the Contracts;

• Includes “Contractor Proposals” to change the scope or to achieve acceleration, which the client can accept or not and share benefits accordingly.
• PSC, TSC, SC contracts will all use Defined Cost in the same way as ECC contracts
• A consensual dispute resolution process – where there is a four week period for escalation and negotiation of a dispute (instead of going straight to adjudication). Senior nominated representatives will try to negotiate a solution within this period
• Option C/D/E/F cost-based contracts will allow contractors to instigate a review of Defined Cost in an attempt to encourage agreement of Defined Cost and importantly Disallowed Costs as works proceed rather than at end of the contract
• Contractors are obliged to submit applications rather than the PM obliged to assess if they don’t.
• Requirement for contractors  to issue quality management systems/plans
• Term “Employer” has been replaced to “Client” throughout the contracts
• Terms Works Information, Service Information and Service Information in their respective contracts have all been changed to “Scope”
• All contracts are written gender-neutral (no more “he/his”)
• Contract Data has been reformatted to make it more practical/intuitive

Changes to the Schedule of Costs:

• C/D/E now only use SCC not the option to use SSCC (shorter schedule)
• Working area overhead and People Overhead been removed and these costs paid as part of
• Defined Cost adjusted to allow the cost of people working at different locations – not just within the Working Areas
• Shorter Schedule has pre-priced people cost which will be filled in within contract data part 2
• Only one fee percentage – no separate subcontract fee percentage

This version of NEC will allow practitioners to resolve ambiguities quickly and efficiently as the suite of contracts has evolved and new provisions have been included, which will hopefully solve previous common problems and will only ultimately benefit the projects the Contract is adopted on.

For more detailed information on the changes, visit the nec contract web sitehere.

Why use NEC4 and not other forms of Contract?

The mainstay of large infrastructure expenditure has often been managed through target cost contracts, as they are viewed as a happy medium for employers often faced with either lump-sum contracts or cost-reimbursable contracts.

In the UK, Target Cost Contracts are predominantly NEC Options C and D or ICC Target Cost Versions with Network Rail commonly providing their own bespoke amendments to the latter, through the NR 12.

The NEC suite of contracts is established on the principles of collaboration, requiring teams to be more proactive in their approach to contract administration, whereas other contracts are often portrayed, by some, as being more adversarial.

This partnering and collaboration between contractor and client, is at the core of the NEC, and is essential for Network Rail as they move to a leaner delivery model ahead of the transition to the Great British Railways.

With Network Rail facing resource challenges as they move during this transition period, a greater trust and transparency with contractors will be required as the programme of essential enhancements and renewals continues at a greater pace than ever before.

Widespread adoption of the NEC4 form of contract would confirm Network Rail’s transition away from the traditional contractual model and continue to drive the BS11000 collaborative working principles that have been the mainstay of the last two control periods.

The biggest challenge…. implementing the change!

Devolution has resulted in different contractual arrangements across Network Rail so a potential change to a single contract family will not be an overnight transition.

Collaboration is built on the behaviours of people so the most crucial adoption hurdle will be to galvanise and upskill the tens of thousands of professionals that will be required to fundamentally change the way they work each day.

One critical success factor for the successful adoption and operation of NEC contracts is consistent and high quality records.  In the cost reimbursable options both parties must have confidence in data captured by suppliers.  Raildiary provides a platform to deliver this data and we will explore in a separate post the benefits of using a site reporting tool to support contracting best practice with NEC4.

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In summary, the adoption of NEC4 contracts can be a valuable asset for businesses in the rail industry. By promoting collaboration and risk management, improving contract management and administration processes, enhancing reputation and credibility, and improving efficiency and cost-effectiveness, NEC4 contracts can help businesses enhance project outcomes, manage risk, and achieve long-term success.