The London Olympics wowed the world last month. But while millions focussed on counting medals, the construction industry may be interested to count the number of disputes that went to court over the course of the game’s 120-project construction programme.
Zero.
It’s a far cry from the fiasco that marred London’s Wembley Stadium project between 2000 and 2006.
Everything that could go wrong did – including the foundations being filled with the wrong strength of concrete – leading to almost every project partner raising a dispute and Multiplex admitting losses of up to £70m.
But the problems could have been avoided.
In 1993, Martin Barnes published his ‘New Engineering Contract’, known to UK construction companies as NEC. Now in its third edition, the contract is mandated for nearly all publicly funded building and civil engineering projects in the country, including those for London 2012 and the majority of projects for BAA Airports Limited.
Since its introduction more than 20 years ago, NEC has been applied to projects in most English speaking countries, and has even been used in the Middle East. But only now are industry lawyers and commentators proposing its use during Qatar’s World Cup construction programme.
“We proved with the London Olympics that NEC works when you are doing a large sports programme, which has a large number of contractors and must be done without delays and cost over runs,” advises contract author, Martin Barnes.
“There have to be relationships whereby, when unexpected problems turn up, you can work out the best solution and how it will be achieved,” Barnes adds.
Written by the industry, rather than lawyers, the contract preserves the relationship between the buyer and seller of construction services, with the aim of keeping disputes out of court, largely via the ‘early warning system’, with other provisions to preserve contractor profits.
The idea came following Barnes’ work for a project management business in the UK, when he came to realise that as soon as the planning and design phases were completed and contracts were signed with the main contractor, the control over the project was transferred and could no longer be guaranteed.
“I designed and wrote the NEC to be a contract between a buyer and seller which enabled both to manage their contribution properly,” he says, explaining that only two minor amendments have been made since. The first following the UK Government’s Latham Report in 1994 on the management of construction projects, and the subsequent following lessons learnt from application of the contract.
“It’s all about management and getting a good result for both the buyer and seller. NEC places a lot of emphasis on planning ahead and reacting effectively to the unexpected. There is a very simple device called ‘early warning’, which helps everybody to minimise the impact of unexpected problems,” Barnes continues.
Global applications
NEC3, as it is known since the latest revisions published in 2005, was written specifically for easy interpretation and translation, avoiding the usual legalese and phrasing terms in a manner that would allow for easy translation in future and easy interpretation for non-native English speakers; there are also no cross references in the documents.
Despite the welcoming reaction from the construction industry, lawyers were understandably apprehensive when the contract was first introduced.
“Stereotypically, lawyers do not like the way in which the NEC is drafted, because it is drafted in a “non-legal” manner, however it does provide clarity and simplicity, which is very different from other forms of contract,” explains Taylor Wessing associate Sarah Mather, who recalls the contract wasn’t immediately accepted in the UK.
Having experienced some of the Wembley Stadium disputes first hand, Mather says the early warning mechanism and promotion of collaborative working form NEC’s primary benefits, along with the prioritisation of practicality and management.
“It is widely acknowledged that some developers in the UAE have adopted a very rigid attitude to disputes. For instance, some decisions have been taken to fight a dispute and to refuse settlement, even if more legal costs are incurred by the developer in the long-run,” Mather continues.
“If the NEC forms of contract were adopted in the UAE and elsewhere in the Middle East, the developers who have previously adopted such attitudes will have to adopt a new collaborative approach in order for the contract to work as it should,” she adds.
Despite this, and the regional prevalence of FIDIC, Mather says there is evidence of changing attitudes with NEC gaining international publicity through conferences and forums, such as the Construction Law conference to be held in Hong Kong next month.
Qatar
These conversations have come at a time when Qatar is notably increasing the momentum of its World Cup schedules and setting frameworks and procedures to aid its development.
The most notable of these over recent weeks has been the inclusion of company names and bids from all firms who apply for pre-qualification and those who are shortlisted, on the Doha Port online tender portal.
Qatar authorities say the aim is to increase transparency, efficiency, quality and competition. While contractors have complained about the public availability of commercial data, Qatar says the solution is for them to adopt a more strategic approach to business practices in the region.
During the conference, James Brennan from London-based Herbert Smith said clients on such projects have little choice when aiming to attract “world class contractors”.
“What we have now is a cultural disconnection between clients and companies. Contractors need to change the way they approach a deal, adding more value beyond contractual communications by bringing new ideas and being innovative,” Brennan is quoted as saying during the conference.
Alternative thinking
When a hybrid version of NEC was employed during the Heathrow Terminal 5 project, the incentive to achieve these objectives was cultivated through the use of the ‘Game Theory’ approach.
Every ‘game’ assumes a winner and a loser and is conducted according to rules; in a way not dissimilar to commercial contracting.
However, while the client is looking for the contractor to aspire to the first pages of a contract, outlining a good outcome, the contractor’s actual efforts are concentrated on the succeeding 50 pages, which describe the ‘rules’ for when the project goes wrong. Game Theory is about shifting that focus.
It’s a similar approach to the NEC contracts, with the focus on preserving working relationships.
“The construction industry around the world is not yet used to a contract which stimulates everybody to manage their contribution to the project well,” Barnes observes, continuing: “This contract motivates people to play their part in the management of a project and you need that in Qatar just like it’s needed in any other fast moving, complex programme of projects,” he adds.
Group head of contract solutions for EC Harris, Mike Allen, comments: “The NEC allows the employer flexibility to influence the programme, design and methods of working, whilst the short, simple phraseology and clear obligations stated within the Works Information help to reduce complexity and misunderstandings.
“The contract is also scalable which means it can be used effectively at the project or programme level, with a variety of different forms, all with the same intent,” he adds.
There are drawbacks, listed to include the lack of caselaw in the UK and the high level of day to day administration NEC demands.
“To get an industry to change the way it operates can be quite difficult,” asserts Barnes.
“People are often suspicious of new things and that is probably true in any part of the world. However, the experience in the UK is that use of NEC has grown very quickly indeed,” he concludes.