There has been an increase in the use of the New Engineering Contract (NEC) in mining, energy and infrastructure sectors. The NEC, which has been in use for over 30 years, provides a choice of procurement strategies, several pricing options, design input and the allocation of risk. On the face of it, this translates to flexibility, but in reality, there are ambiguities under each procurement strategy and pricing option that must be clarified upfront so that one party does not carry an unfair burden of risk and liability.

Over the years, the most common procurement strategy or pricing option chosen by employers has been option B – a priced contract with a bill of quantities (also known as a remeasurable contract). The second, option A, is a priced contract with an activity schedule (a lump sum contract).

“As specialists in construction law, at MDA Attorneys we have seen a shift recently from remeasurable to lump sum contracts in line with changing procurement strategies for state-owned and private enterprises. Both approaches have their difficulties,” says MDA Attorneys director Odette Potgieter.
 
Design Obligations and Risk
Design obligations under the NEC are generally addressed in the Works Information, while design liability is addressed through the definition of a defect, as well as two specific clauses, applicable law and secondary options*. The first clause places the risk of a fault in the employer’s design on the employer, and the next clause places the risk on the contractor from the starting date until the defects certificate is issued for risks not expressly carried by the employer. This raises a concern once the defects certificate has been issued, how will liability for a defect in design be established?

Another issue arises when the employer includes designs (whether preliminary or otherwise) in the Works Information. Which party carries the risk associated with the employer’s design? We recently dealt with a matter where a fault in the employer’s preliminary design at tender stage resulted in a dispute. Fixing the error increased costs by tens of millions of Rands and the employer maintained that the contractor carried the risk as the designs were only preliminary.  

Adding fuel to the fire, the NEC contract requires that contractors furnish Works Information in cases where the contractor is responsible for design. We see that this is often omitted in the contract, which means there is no reference against which obligations can be assessed.

It is important to have a clear understanding of your design obligations and associated risks as a contracting party. Given that there are difficulties arising from the standard wording of the NEC in respect of a design and build contract, you need to ensure that careful consideration is given and that the uncertainties are addressed. If not, unnecessary disputes may arise which could have been prevented, and a contracting party may be held liable for a risk for which it did not intend to contract.

Should you need support with your contracts, MDA Attorneys has years of experience as construction law specialists and can advise you on your design and build contract, whether you are a contractor or an employer.

*Clauses 80.1, 81.1. Limitations to design liability are found in secondary options X15 and X18.