NEC vs. FIDIC: A Comparison of International Construction Contracts

This essay provides a comparative analysis of two prominent standard forms of international construction contracts: the New Engineering Contract (NEC) and the International Federation of Consulting Engineers (FIDIC). It begins by discussing the origins and rationale behind using standard forms in the construction industry. The essay then delves into the specifics of the NEC, focusing on key changes introduced in NEC4 compared to NEC3, including modifications related to general clauses, contractor responsibilities, time management, quality control, payment procedures, compensation events, title, liabilities, insurance, and termination clauses. Similarly, the essay examines the FIDIC Yellow Book, highlighting significant updates concerning the role of the Engineer, claims and time bars, and fitness for purpose. The analysis draws upon relevant case law and legal precedents to illustrate the practical implications of these contractual provisions and the reasons for their evolution. The essay concludes by summarizing the key differences and similarities between NEC and FIDIC, offering a comprehensive overview for students and professionals in construction law.

International Construction Contracts
English Legal System
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International Construction Contracts 1
Introduction
Standard forms exist in all industries. There can be various reasons for these forms. For
instance, a firm may create a specific form to standardize the form of data it receives. Similary, a
standard contract saves the extensive work of creating a new one from scratch, and it serves as
the best way to eliminate chances of errors and gaps as standard form ensures that all required
information is filled. This paper will be focusing on two types of standard forms of contract. The
first form is the New Engineering Contract (NEC) form popularly known as the NEC family of
contracts. The other form would be the International Federation of Consulting Engineers
(FIDIC). Each of these forms has recently undergone modifications hence differing from their
predecessors. Thus, this paper will be providing a high-level comparison drawing out the
differences between each version of form. Secondly, these forms are different in nature, and they
also differ in terms of where they are used and how their structure. Therefore, the paper will
provide detailed similarities and differences of both. Before getting to the two main objectives
which are comparing the different versions of each and comparing both forms, this paper will
first discuss the origin of each form and rationality of their use.
The New Engineering Contract (NEC)
The New Engineering Contract (NEC) was first issued in 1993. The term itself represents
a brand name which is a suite of engineering contracts presented by the NEC, a part of Thomas
Telford Ltd. On itself, Thomas Telford Ltd is an owned subsidiary under Institution of Civil
Engineers. The NEC issues its first edition contract forms (NEC) in 1993 and later released a
second edition in 1995. After issuing the second edition, NEC renamed the main contract form to
Engineering and Construction Contract (ECC). However, they retained the term NEC to serve as
the brand name that was to guide the entire suite of contracts that were still in development.

International Construction Contracts 2
Later in 2005, NEC released the third edition of the forms of contract called the NEC3. The
NEC4 was the published in the 22nd of June 2017 which replaced the NEC3 which had been in
place since 2005.1 Nevertheless, all projects that were started before the release of NEC4 will
still remain under NEC3, and NEC also promised to retain its support for the for those projects.2
Key Changes in NEC4
Section 1: General
The previous clause 10.1 has been split into two with clause 10.1 remaining with
requirements for the parties’ compliance. The second clause became clause 10.1 which deals
with mutual trust and cooperation. Changes were also made to Sub-contractor’s definition.3
Unlike NEC3, the new version requires PM to explain the reasons for rejecting facts or
in the Contractor's programme which would assist the Contractor in making the necessary
changes. The risk registers were replaced with early warning register,' and this should be
provided within two weeks from the commencement date. Similarly, the new early warning
meetings have replaced the risk reduction meetings.4 Also, unlike NEC3, NEC allow the
Contractor to propose changes to PM for the purpose of reducing client’s costs.5 NEC4 has also
introduced new rules prohibiting the Contractor from engaging in corruption.6 The changes in
this section have been particularly necessitated by the occurrence of cases in court questioning
the parties spirit of good faith and mutual trust. For instance, some instances required the court to
weigh between mutual trust and estoppel.7 Also, the dispute as to NEC3 clauses 10.1, 10.2
1 NEC, 'NEC4: June 2017 Edition Complete Family Of Contracts' (Thomas Telford 2017).
2 NEC, 'Nec4: The Next Generation An Explanation Of Changes And Benefits.
3 cl 11.2
4 cl 15
5 cl 16
6 cl 18
7 [2017] EWHC 319 (TCC)

International Construction Contracts 3
caused the courts in England and Wales to ascertain that the doctrine of ‘‘good faith’’ is not
present in contract law, so the parties should expressly state the duties they intend to impose.8
Section 2: Contractor's main responsibilities
Unlike NEC3, NEC4 is giving the client more freedom for subcontracting.9 In addition,
the new changes will require Sub-contractors to wait for the client’s acceptance before their
appointment by PM.10 There is also a new close allowing any of the parties to transfer its rights
to a third party. However, clients cannot transfer their rights if the new assignee intends to breach
mutual trust or will not cooperate.11 Issues of transfer of rights and benefits were somehow
ambiguous in NEC3 which constantly required the determination of a court or the adjudicator.
For instance, the court had to affirm the adjudication decision that rights in construction contract
can still be transferred or assigned to other parties.12 There is also a new clause that restricts the
parties from disclosing confidential information made by the parties that concerns their work
except where the information is required for the execution of the work provided in the agreement
13 Previously, this provision was ambiguous in NEC3 and its misinterpretation could course one
party to suffer injustice. For instance, the court had to compel the defendant to provide the
claimant with information regarding the transaction costs in their agreement.14
8 [2013] EWCA Civ 200
9 cl 26
10 Cl 26.3
11 cl 28
12 [2017] EWHC 67 (TCC)
13 Cl 29
14 [2012] EWHC 3717 (TCC)

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Section Three: Time
In NEC4, there would be a deemed acceptance where the PM will not respond to the
Contractor's programme within the stipulated time. However, notification for failure must be sent
to the PM after which a lapse of one week without response will constitute acceptance.15
Section Four: Quality management
NEC4 has replaced the NEC3 'testing and defects' part. This clause comes with new
obligations for the Contractors to submit quality management systems, quality policy statements,
and quality plans to PM.16 The reason for this amendment was to solve the controversies that was
arising in NEC3 regarding issues with defects and quality. For example, some cases required the
courts intervention just to decide on the testing regime that the client required the compliance of
the Contractor.17
Section 5: Payments
Contractors must submit their applications for payments reflecting the actual amount due.
The new clause also has introduced the final account process18 To solve NEC3 problems over
disputed costs, Contractors in NEC4 must inform the PM when they finalize the defined cost.
They must also avail the records for review. On the other hand, the PM must provide his or her
acceptance or rejection with 13 weeks. The failure would constitute the deemed acceptance.
There are different court decisions that led to these amendments. Among them were cases
concerned with compensation events. For instance, judge Deeny J talked of compensations that
are fair and reasonable.19 In terms of records and reviews, the judge talked about proof from
time-sheets and other materials that can demonstrate what work was done at that period.20
15 Cl 31
16 CL 40
17 EWHC 1763 (TCC)
18 Cl 53
19 [2017] NIQB 43
20 ibid

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Section Six: compensation events
NEC4 has a new even where the PM must notify the Contractor over rejection of
proposed instructions. The introduced dividing date solves any confusion over shifts from
forecast and actual costs, and guides identification of relevant programme.21 Cases of
compensation events have been handled by different cases regarding NEC3. For example, the
Court of Appeal upheld the decision of a lower court and the adjudicator's interpretation
regarding issues of compensation event22
Section Seven: Title
The NEC4 allows the Contractor to use their client’s materials. However, the use has
been restricted only for the work.23 One of these situations is where a Sub-contractor provided
the Contractor with roofing slates, and the Contractor just kept them on site. There was no
payment made by the Contractor but the employer paid him. Later the Contractor went to
bankrupt and it was upon the court to find out to whom were placed the title of goods. In its
decision, the court ruled that the Sub-contractor had not passed goods to the Contractor.24
Section Eight: Liabilities and insurance
This section has changed “risks” to “liabilities". The clarification of the Contractor's
liabilities has been provided25 The provisions for repair and indemnities have been replaced with
the recovery of costs26 Examples of cases that necessitated this rationale were cases where all
risks were policies were typically though to cover the Contractors, Sub-contractors and
employers. However, issues of joint names policies on the parties’ liability could cause some
21 Cl 63.1
22 [2014] NICA 27
23 Cl 74
24 [1979] 14 BLR 70
25 Cl 81
26 Cl 82

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complexities. For instance, most of the time courts had to decide whether parties are liable to
each other regardless of their joint names policies.27
Section 9: Termination
There have been provided a secondary option for client termination under any reason.28 In
addition, clients have also been around to terminate in the cases of corruption.29 There are
various reasons for termination. The most common reason is when the other party has committed
a substantial breach or a repudiation. Substantial breaches can be corruption or major defects.
For instance, the court allowed a termination when one party produced defective work.30
The International Federation of Consulting Engineers (FIDIC)
The International Federation of Consulting Engineers is an association formed by
consulting engineers that was in 1913.31 Fidic’s published its first contract (Red Book) issued in
1957 following it with the second edition in 1969. The third edition was published in 1977, and
the fourth edition came in I987, Redbook. After Red Book, FIDIC has also been expanding to
match the current demands of the construction. Besides, the contract has also been updated to
include other areas such as mechanical and electrical works which is now managed under the
1963 edition (Yellow Book)
Moreover, in 1999, FIDIC released another updated version of their pre-existing suite
which became the first version of the new standardized forms (Rainbow Suite). Despite releasing
the Rainbow Suite, many people have been opted to working with Yellow Book; this made
Yellow Book the most popularly used version.
27 [2016] CSOH 177
28 Option cl X11
29 Cl 91
30 [2015] EWHC 2915
31 'Other Standard Forms of Construction Contracts: NEC, ICC, ENNA, Icheme, Orgalime, AIA, VOB'
[2014]

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Key Changes in FIDIC-Yellow Book 2
The Engineer
In the new edition, FIDIC still holds the Engineer as the key person for making
engineering determinations.32 Notably, parties do not have to evoke clause 20 as they can keep
referring arising issues to the Engineer. The provisions in the new edition obliges and Engineers
to remain neutral when solving claims. They can also talk to the parties either as an individual or
jointly to solve the disputes and reach an agreement. Engineers should also adhere to strict time
limits while making decisions. Notably, these amendments were made following a decision that
Engineer’s determinations pre-requisite to the employer’s entitlement.33
Claims and time bars
The new version has added some more requirements for formalities. This version has
added more procedures and additional deadlines. In particular, Contractors are required to
provide notices of claims either for money or time. These notices should not be later than 28
days from the date when the Contractor realized the situation for the claim.34 These changes
were necessitated by Lord Neuberger decision that the termination of the contract by the
Contractors was necessary based on the provisions of FIDIC Red Book (1999).35
Fit for Purpose
The issue of fit for purpose originates from sub-clause 4.1. This clause is more of an issue
to liability for non-conformity. The new draft has included a clause for guiding the Contractor’s
indemnities. The rationale behind this modification came when the court of appeal found some
difficulties with the interpretation of the previous clause.36
32 FIDIC: Conditions of Contract for Plant and Design-Build For Electrical And Mechanical Works, And
For Building And Engineering Works, Designed By The Contractor (FIDIC 2017).
33 [2016] EWHC 607 (TCC)
34 Cl 20 (n1)
35 [2015] UKPC 37, 162 ConLR 183
36 [2012] EWCA Civ 1158

International Construction Contracts 8
Delays
FIDIC Yellow Book has provided further details regarding the issue of delays. For
instance, the time schedules are now subjected additional requirements.37 The amendments come
following various controversies in court. One example is a decision where the court had to
interpret clauses 2.5 and 8.7 in an objective approach to find the parties intention instead of
solely relying on the clauses.38
Defects
These changes allowed the employer decide on a date when the Contractor should ensure
that all defects are corrected. Some of the changes introduces are a procedure that the Contractor
should take to access the work, issues with preferred dates and employer’s acknowledgement of
a proposed date. The rationale behind this change has a background from the case where
Contractor was given just one-day extension out of the requested 660 days.39
Adjudication Board (DAB)/ Dispute Avoidance
The modification of the DAB’s name indicated FEDIC proactive objective in the
avoidance of disputes and their resolution. The extension of approach to disputes has left clause
20 for just employer and their contract claims. Other issues of disputes are now solved under
clause 20. The clause has elevated DAB to a stable DAB instead of when it remained as an ad
hoc one. Also, the new changes dictate that parties can chose to refer their matter to DAB jointly
by requesting for “assistance.” Besides, they can also discuss their matters informally to reach an
amicable solution. The amendments also authorize DAB to invite the disputing parties to create a
joint referral. However, this only happens if DAB is aware for the dispute. Other provisions
include requiring parties to send notices of dissatisfaction (NOD) in case of a DAB’s decision.
37 sub-clause 8.5 (n1)
38 Ibid (n2)
39 [2014] EWHC 1028 (TCC)

International Construction Contracts 9
Parties can also commence arbitrations, and arbitral proceedings can commence while the work
is still in progress. The strengthening of DAB has come from various court affirmatives. For
instance, the Court of Appeal in Singapore told the parties to comply with the provisions of
FIDIC regarding dispute resolution before seeking the court's intervention.40 In another case, the
court gave affirmed the decision of DAB by ordering the respondent to comply with DAB’s
orders.
40 [2015] SGCA 30

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Question 2: Comparison Between the NEC4 ECC and the Yellow Book 2
This section is will be comparing NEC4 and Yellow Book2. Like as mentioned above,
Yellow Book 2 is a version of contract suite developed by FIDIC. On the other hand. NEC4 is a
version of contract suite developed by NEC. Both companies provide standardized forms for the
formation of construction contracts.
This section would be more interested in in analyzing both contract forms (NEC4 and
Yellow Book 2) focusing on them from a document management perspective. In that way, such a
point of view would be necessary to draw the right comparison of the two by evaluating how
each form enhances or works against collaboration, Secondly, the by looking at the management
perspective, it would be easier to see the efficacy of each form regarding the matters of project
delivery. In other words, this section will be analyzing the tools of collaboration and efficacy that
each of the forms provide when it comes to project delivery.
Collaboration in project deliveries is an approach that focusing in integration of systems,
people, practices and structures to reduce cost while still maximizing the efficacy of the results.
Currently, many people are now considering it an evolution where segregated information that
was dispersed among different team members is shared together.41 This revolution is not only
reducing disputes among the project development teams, but it is also reducing costs. Thus,
project delivery, collaboration and efficacy are now becoming inseparable.
Comparison of Tools of Collaboration and Efficacy
As the construction industry moves towards a collaborative environment, the demand for
effective project managements that provide collaborative environment has made it a necessity for
NEC and FIDIC to provide such elements in their contract form. The efficacy and the level of
collaboration that each form provides have been put to scrutiny by different authors. While
41 Julio Bueno, The Projects And Construction Review (7th edn, Encompass Print Solutions 2017).

International Construction Contracts 11
comparing the suitability of each form, research has found that NEC most people prefer NEC
forms over FIDIC as they have a forward-looking nature, they use clear and straightforward
language, they are flexible, and the forms allow project management team to collaborate.42
FIDIC has also attracted criticism due to the much ambiguity noticed in their language,
instructability, complication, and legal phrases.43
(a) The Tools of Collaboration and Efficacy in Yellow Book 2
(i) Engineer’s Determinations under New Sub-Clause 3.7
FIDIC has added a new role requiring the Engineer to consult with other parties while
making determination.44 The new clause allows the Engineer to either consult them individually
or jointly. This can enhance collaboration as the Engineer would show the client or the
Contractor that their input is valuable. It increases efficiency as disputes and discrepancies can be
solved accordingly.
(ii) Advance warnings
FIDIC has added a new clause that requires either party to notify the Engineer whenever
there is a foreseeable event. These are events that can affect work, increase contract pricing or
even cause delay. This clause is increasing efficacy in delivery by that if effects are
communicated earlier, both parties can talk together to decide how they can alter or prevent the
such events.
42 Noha D. Rasslan and Ayman H. Nassar, 'Comparing Suitability Of NEC And FIDIC Contracts In
Managing Construction Project In Egypt' (2017) 6 International Journal of Engineering Research &
Technology (IJERT)
43 Haytham Besaiso and others, 'A COMPARISON OF THE SUITABILITY OF FIDIC AND NEC
CONDITIONS OF CONTRACT IN PALESTINE' [2017] Cobra2016
44 Bird & Bird, 'New FIDIC Books (2017 Editions) - Are You Prepared? - Bird & Bird' (2017).