19/08/24
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Instruct Newsletter #20 - NEC - Selecting X Clauses: Are you getting it wrong?
Welcome to the Instruct newsletter. Bringing you weekly NEC knowledge, like the postman, but we only bring good news!
Developing your contract can be time consuming, drafting the Scope, collating Site Information, picking the team, and selecting X Clauses!
Are you getting it wrong!?
This week we assess:
What is an X Clause?
How to select the ones you want?
How getting it wrong can impact your project!
Let’s begin…
1. What is an X Clause?
NEC contract are compiled of Core, Main Option, and Secondary Option Clauses.
Within Secondary Option Clauses you have X, Y, and Z
X - Secondary Option Clauses (X1-X22 for NEC4 ECC)
Y - Y(UK)1 Project Bank Account, Y(UK)2 The housing Grants, Construction and Regeneration Act 1996, The Contracts (Rights of Third Parties) Act 1999
Z - Additional Conditions of Contract
X Clauses
There are 22 X clauses in the NEC4 ECC contract, they are:
X1: Price Adjustment for Inflation
X2: Changes in the Law
X3: Multiple Currencies
X4: Ultimate Holding Company Guarantee
X5: Sectional Completion
X6: Bonus for Early Completion
X7: Delay Damages
X8: Undertakings to the Client or Others
X9: Transfer of Rights
X10: Information Modelling
X11: Termination by the Client
X12: Multiparty Collaboration
X13: Performance Bond
X14: Advanced Payment to the Contractor
X15: The Contractor’s Design
X16: Retention
X17: Low Performance Damages
X18: Limitation of Liability
X20: Key Performance Indicators
X21: Whole Life Costing
X22: Early Contractor Involvement
Think of the X clauses as a shopping list, a means of incentivising, penalising, and mandating your requirements to the Contractor. It also establishes protocol for the Client, e.g. X1 requiring the Client to take the risk of inflation!
You can tell which X clauses have been included as they are shown in Contract Data part 1!
2. How to select the ones you want?
Selecting X clauses is both simple and complicated. We’ll give some examples below, but first you should do this when setting up a contract:
Read each X clause and understand its intention (e.g. X7 Delay Damages. The Contractor pays a set amount if they are late!)
Write down the key objectives of the contract/ project (time, cost, quality). What are you trying to achieve and what is most important? e.g. cheap as possible or fast as possible?
Work through each X clause and decide whether it will help you to achieve your objectives.
Bear in mind…depending on market conditions, some Contractor may not be willing to enter into difficult contracts. Make your contract as appealing as possible whilst still protecting your objectives!
Example!
You need to build a new motorway with the following criteria:
Client is building the project for someone else
Inflation is uncertain
Fixed budget, but there is some additional funds kept in reserve
1 Year programme, can’t be late!
Contractor is to design & build
Here’s what we would select and why:
X1: Price Adjustment for Inflation - Because inflation is uncertain and Contractor’s wont sign without it!
X6: Bonus for Early Completion - Opening the motorway earlier is a big win for the Client, and it can’t be late! Positive for the Contractor.
X7: Delay Damages - To compensate an early bonus, there is also a penalty for being late! The Client could need this money to keep the project in budget.
X8: Undertakings to the Client or Others - The project is for someone else (not the Client), so we need an undertaking
X9: Transfer of Rights - The Client wants full ownership of the design
X10: Information Modelling - Could be used but we haven’t stipulated it here!
X11: Termination by the Client - Client needs to terminate for any reason!
X14: Advanced Payment to the Contractor - The Client is willing to cashflow the Contractor in the early days. This boosts Contractor engagement.
X15: The Contractor’s Design - The Client wants clear liability for the Contractor’s design, at a ‘reasonable skill and care’ level.
X16: Retention - To balance an advanced payment, the Client will utilise retention
Now this is a short summary and reason why, but look closely, what does this selection of X clauses achieve?
Incentive for the Contractor (advanced payment, bonus for early completion, payment adjustments for inflation)
Risk management by Client (Delay damages, transfer of rights, undertakings, termination)
A good balance aimed at project delivery, not unnecessary penalty.
3. How getting it wrong can impact your project!
Getting it wrong can be terrible for relationships and contract performance. Here are some ways in which a bad selection of X clauses can impact your project:
1 All risk, no reward
Client includes for delay damages, termination, and retention.
2 Selected but not Integrated
Some X clauses need requirements to be detailed in the Scope or Contract Data. Fail to do this and the X clause becomes unusable. E.g. X8 requires an undertaking to be in the form set out in the Scope! X15 says the Contractor can use the work it produced for other other, unless stated otherwise in the Scope. You need to ensure the Scope is clear!
3 Incomplete Contract Data
As well as Scope, you need to complete the Contract Data correctly, e.g. X14 Advanced payment is for the amount stated in the Contract Data! X16 Retention can only be used if the figures are correctly inputted into the Contract Data!
Selecting the X clauses is critical in project success, but so is filling out the contract correctly!
How to avoid X clause issues:
Read the requirements of each X clause carefully
Note where Contract Data or Scope need to reflect the needs of an X clause
Compile the relevant Scope and Contract Data, cross checking to ensure clarity
Get someone who is trained in NEC contracts to check and verify the contract is complete!
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