University of Auckland

The Analysis of the potential for use of the New Engineering Contract in New Zealand construction

The potential for the use of the NEC in New Zealand construction was identified in the recent Masters thesis:

The Analysis of the Use of Collaborative Procurements Systems in New Zealand Construction. Partnering, Alliancing, Joint ventures.
Yana Shestakova, 2005

This thesis suggested that despite the contract�s popularity overseas in partnering situations (particularly in the United Kingdom) and theoretical benefits, there have been very few examples of New Zealand construction projects undertaken using it. The NEC suite of contracts, developed in 1993 by the United Kingdom�s Institute of Civil Engineers (ICE), aims to provide a set of procedures to stimulate best practice management by all project participants (Ndekugri et al, 1999). To quote Sir Michael Latham:

�The NEC is a modern day family of standard contracts that truly embraces the concept of partnership and encourages employers, designers, contractors and project managers to work together through both a powerful management tool and a legal framework to facilitate all aspects of the creation of construction projects.� (NEC Contracts, 2006)

The ICE�s objectives when creating the contracts were to make improvements to traditional contract in the areas of flexibility, clarity and simplicity, and stimulus to good (NEC Contracts 2005). The final area is of particular note, with the NEC being underpinned by a relationship-based philosophy. The contract is now well established, and has been used in over twenty countries (Barnes, 2002), including use by large international project sponsors such as the Asian Development Bank and the United Kingdom�s Overseas Development Agency (Ndekugri et al, 1999).

NZS 3910:2003 Conditions of Contract for Building and Civil Engineering Construction is the current industry standard contract for building and civil engineering construction (Wilkinson et al, 2003), and of a traditional contract style. This contract will thus provide a benchmark for analysis (within a New Zealand context) of the equivalent NEC document � the Engineering and Construction Contract.

On initial review, the relationship-based nature of the NEC is somewhat of a departure from the styling of NZS 3910:2003, which has often been regarded as instilling an adversarial relationship between project participants (Shestakova, 2005) and is of the traditional contract style that has been identified as compromising partnering practices. Despite the NEC�s popularity overseas, the usage of the contract on New Zealand construction projects has been, at best, very scarce indeed; with only two clients currently identified as having used it (Meridian Energy, and Solid Energy NZ).

Partnering is a concept that is growing in popularity in New Zealand construction (Wilkinson et al, 2003). The definitions of partnering are numerous, but its essence is captured by the Wilkinson et al (2003) who assert that partnering �consists of all the parties to the contract making a commitment to work together co-operatively� (Wilkinson et al, 2003). Furthermore, various levels of partnering exist, from the most simple � project partnering, where organisations work together on a single project, to strategic partnering, where organisations work together on a series of projects (a longer term relationship) (Shestakova, 2005). It must however be noted that generally the partnership itself is not administered by any contractual agreement or legal bind � most often the relationship is instilled into the culture of the project team, quite often with a �partnering charter� � a non legally binding agreement - working on top of traditional contracts.

Benefits of project partnering perceived by the New Zealand construction industry include faster project delivery, higher quality, less litigation and cost savings (Shestakova, 2005).

As noted above, the success of partnering is determined by the ability to create successful relationships amongst the projects participants. The adversarial/confrontational nature of traditional contracts has been noted in the literature as impeding this. Despite the partnering charter being in operation, the traditional contract forming the commercial relationship between parties, is considered to undermine the relationship culture of partnering. This has led to an often cynical attitude towards it by construction industry players (Shestakova, 2005). Furthermore, it has been noted by Shestakova that New Zealand industry players feel that partnering charters often contradict the traditional contracts to which they are underpinned, impeding the performance of partnering.

As mentioned above, the NEC is founded with a relationship based philosophy. This should likely improve the effectiveness of partnering, by aligning the contract�s objectives with the partnering objectives for a project. Furthermore, the NEC �Partnering Option X12� can also be included into the contract family. This is a non-legally binding option to the main contract, providing guidelines for collaborative project management � essentially providing a structure from which partnering (or other collaborative models) can be conducted. This option is gaining popularity overseas as a vehicle for partnering, but no known projects in New Zealand have undertaken using it (Shestakova, 2005).

Upon initial inspection the NEC appears to have the potential to provide the contractual foundation for which successful projects can be completed. This research will therefore critically examine the potential for use of the suite of contracts in New Zealand construction.

The review of international research regarding adoption of the contract has identified that client leadership, culture embracing innovation, a shared perception for change to the NEC and general marketing of the product have provided facilitators for its acceptance. Barriers have been provided by the risk and cost associated with adopting a new form of contract management into a firms� management structure, inertia of the current industry culture and local standards/regulations.

The primary research (comprised of structured interviews of New Zealand construction industry players) will aim to highlight the opinions as to whether such barriers/facilitators exist in New Zealand. Furthermore, the researcher aims to conduct structured interviews with project participants from the two New local clients (Meridian Energy Ltd and Solid Energy NZ Ltd) that have undertaken projects using the NEC � this will provide insight into the decision making process taken in adopting the contract system, and the results of its usage.