With their popular ethos of flexibility, simplicity and clarity, NEC3 contracts are featuring more and more on construction projects around the UK. However, for the most part, NEC3 contracts are not as comprehensively written as other standard forms of construction contract. Therefore, contracting parties frequently consider it necessary to amend the core NEC3 clauses to add in the sort of detailed provisions that they are used to seeing in other contracts.

Z clauses are used as mechanisms to amend and/or insert wording into the NEC3 core clauses. Unfortunately, Z clauses can often be difficult to understand. This is often because Z clauses are not drafted using the same style and terminology as the rest of the NEC3 contract, creating discrepancies. In addition, a Z clause which amends one part of the NEC3 core clauses may have an impact on other core clauses. Those who are unfamiliar with the NEC3 suite of contracts may overlook the wider impact that a particular Z clause has.

It is vital for both parties, whether contracting upstream or downstream, to have a strong understanding of how any incorporated Z clauses can affect their contractual obligations and/or protect their position. In addition, for Contractors contracting upstream under the NEC3 Engineering & Construction Contract and downstream using the NEC3 Engineering & Construction Subcontract, it is critical to ensure that any Z clauses incorporated are ‘back-to-back’ where necessary.

In this article, we identify and discuss 5 common amendments to NEC3 contracts which all parties should be aware of.

1. Compliance with Legislation

Employers often insert a Z clause which introduces a general obligation to comply with applicable statutes, codes of practice, regulations, permissions and any other provisions having the force of law. The absence of such a clause in the un-amended NEC3 contracts means that, if the Contractor breaches certain legislation, the Employer cannot obtain a direct contractual remedy against the Contractor in respect of that breach; therefore, this type of Z clause features frequently.

2. Collateral Warranties

Most construction projects involve the provision of numerous collateral warranties, including warranties from the Contractor to third party funders and warranties from Subcontractors to the Employer.

The NEC3 Professional Services Contract is the only NEC3 contract which contains a clause requiring the provision of collateral warranties. It is therefore very common for the requirement to provide warranties to be added into the Engineering & Construction Contract and Subcontract by way of a Z clause.

3. Prevention

Clause 19 states that any event which prevents the Contractor from completing the Works, which neither party could prevent and which an experienced contractor would have judged that there was such a small chance of it occurring that it would have been unreasonable to allow for it, is essentially at the Employer’s risk. This wording is regarded as much wider than a typical force majeure clause which would cover specific events such as fire, flood and terrorism; therefore, it is frequently deleted or amended by the Employer.

4. Workmanship

Under NEC3 clause 20.1, “the Contractor Provides the Works in accordance with the Works Information”. By implication, this means the works must comply with any purposes specified in the Works Information i.e. the works must be fit for purpose. For Contractors, this can be seen as an onerous and risky clause, particularly in relation to designs. In situations where the Contractor is responsible for design, other types of standard form contract provide that the Contractor is obliged to use reasonable skill, care and diligence in carrying out design work. An obligation to use reasonable skill and care will fall within the scope of a professional indemnity insurance policy, whereas a fitness for purpose obligation will typically not. The fitness for purpose obligation in relation to designs can be excluded by selecting Option X15, which imposes a reasonable skill and care obligation; as such, Contractors often insist on this.

Employers often consider that clause 20.1 is too brief, particularly in situations where the Works Information does not go into sufficient detail in terms of the quality and standards of the works. Therefore, clause 20.1 is often amended and widened by way of a Z clause. For example, the Employer might amend clause 20.1 by stating that the Contractor has to provide the Works in a consistent and diligent manner, ensuring that the works are of good quality and that materials which are known to be hazardous to health and safety are not used.

5. Subcontracting

Clause 26 imposes rules and restrictions in relation to subcontracting and obliges the Contractor to submit the name of any proposed Subcontractor together with any proposed conditions of contract (unless an NEC3 contract is proposed or the Project Manager agrees that no submission is required). Under the un-amended NEC3 wording, the Project Manager can only refuse to accept a Subcontractor in very limited circumstances; therefore, a common Z clause which Employers insert involves expanding the reasons they have to refuse Subcontractors. For example, an Employer may introduce a Z clause amending clause 26.3 so that the Project Manager can refuse to accept a Subcontractor who is known by the Employer to have breached health and safety legislation whilst acting as a Subcontractor for the Employer on a previous project. Indeed, it is common for the amendments to clause 26.3 to go even further than this so that the Project Manager can refuse a proposed Subcontractor for any reason at all.

Want to know more?

As specialist construction lawyers, Hawkswell Kilvington have a wealth of experience in drafting and negotiating amendments to NEC3 contracts.

Look out for our next article, where we will outline 5 more common NEC3 amendments you should be aware of.