With the focus in the construction industry and surrounding supply chain on reducing carbon emissions, driving to net zero carbon, and related building safety improvements, it is good to see that the authors of the NEC Contract have taken an important step towards facilitating sustainability in a contractual sense by developing Option X29 to incorporate obligations to deliver, support and incentivize carbon reduction initiatives with contractual mechanisms. It is an option and not a standard clause but it is the first of major standard publications to incorporate this type of wording and with the JCT expected to issue a freshly updated contract suite over the next 12 months, it will be interesting to see whether they adopt the same approach.
While the NEC Option X29 Clause puts obligations on the contractor, it does require some thought, preparation, and analysis by the employer as well.
One key aspect of the mechanism is the “Climate Change Requirements” document which forms part of the scope of the work that a contractor must provide. The NEC does not write these, they are for the employer to stipulate. These can be requirements in relation to any aspect of the works including design, construction, and future operation of the building. It is important for the employer and the professional consultancy team supporting the employer to set out their requirements at an early stage so bidders can understand the required output. Any such information should be measurable and achievable and not so high-level aspirational that the parties cannot assess them, certify them as complete, or indeed override any disputes over interpretation. Even worse would be an uninsurable fitness-for-purpose target. Failure to comply with the Climate Change Requirements is a defect in the same way as other design or construction defects which the contractor will have to correct but if the information is vague to start with, this will make any claims difficult to prove.
Option X29 also includes a performance table which allows employers to set out targets and incentives. Failure to achieve a target does not automatically mean there is a defect in the works but setting a target can provide a useful reference point or trigger a financial incentive. Depending upon the overall target set by the employer, it may be sensible to place a limit on the contractor’s liability in this area so that they do not feel unfairly penalised or in fact, refuse to submit a tender at all in case they just cannot achieve the targets. The whole ethos of the NEC contract family is to work in a spirit of mutual trust and cooperation so in a very similar theme to conventional liquidated damages for delay, while the law does recognise an employer’s ability to incentivise performance, the extremely harsh consequences can simply lead to bidders refusing to tender or artificially increasing their prices which moves away from the spirit of collaboration and real-time project management at the heart of the NEC procurement process.
Another key aspect of Option X29 is the Climate Change Plan which is similar to the concept of Contractor’s Proposals in the JCT Suite, specifically in relation to sustainability aspects. The contractor’s plan will reflect their strategy for achieving the requirements showing how they will manage the various stakeholders and tasks to meet the employer’s overall intentions in relation to environmental protection and sustainability. The contractor can propose changes to the scope in order to facilitate this as the works progress which again, is encouraged by NEC as a result of their ethos of real-time management.
The wider benefit of using this contract mechanism is the ripple effect through occupiers, lenders, staff recruitment and retention, and positive PR to the wider public when they see that the whole property sector is continuing to drive change and create innovative ways to protect the environment. The new Clause Option X29 is not a complete solution and will require a great deal of thought and discussion between the parties as to how it will be used but NEC contracts are the official public sector endorsed contract and significant progress has been made already to tackle carbon so modifying contracts to facilitate that should encourage further creative thinking and encourage all affected parties to think about the future.
