This article, comparing FIDIC and NEC contracts, was prepared by Ahmad Shahrour for AfiTaC’s blog.
When implementing international projects around the world, it’s important to have a look at the two most used contract references: FIDIC and NEC. When getting more engaged with these two types of “contract standard forms”, you will notice several differences in their approaches to tackle different business aspects:
- FIDIC is the “traditional” standard contract used internationally, for a long time.
- NEC was launched in 1991. It is well known for its clarity, flexibility, and easy language.
When you look at some specific terms in both contracts, you can easily see the main difference between both. Time, cost and quality are some of the main terms in these contracts.
General considerations on FIDIC and NEC
In both contracts, an entity acts on behalf of the Employer:
- The Engineer represents the Employer in FIDIC (in the Yellow and Red Books);
- The Project Manager does that in NEC – Engineering and Construction Contract.
Both contracts are widely used internationally in both civil and common law jurisdictions. For each contract, the governing law should be specified and the ruling language.
We can clearly see how FIDIC focuses on claims, liabilities, dispute, and risks. NEC focuses on issuing early warnings, on programme and on preventive measures to make the contract more manageable between the parties. Also, the written format of FIDIC is traditional with sometimes complex language. NEC uses easy, clear, and straightforward language. The clarity and simplicity of the language in NEC contract facilitate the understanding of its clauses which makes it more user-friendly than FIDIC.
In FIDIC, the Contractor should submit a detailed programme that is only updated when the actual work does not match what is planned anymore. While in NEC, the Contractor should submit to the Project Manager, on a regular basis, a detailed programme for acceptance.
Another important difference that can be seen in NEC is the concept of “early warning” which is not found in FIDIC [note from AfiTaC: in FIDIC 2017, we now have clause 8.4, advance warnings]. Both Contractor and Project Manager should notify the other when any unexpected event or error happens that can affect time, cost and the quality of the Works. This enables both Contractor and Project Manager to detect the problem as soon as possible and hence reduce the risks associated with it. In contrast, in FIDIC contracts, Contractors will only claim for their time and money losses when the problem had already occurred.
Both FIDIC and NEC adapt when changes, variations and claims occur in terms of time and cost.
- FIDIC analyzes each term (cost and time) on its own with all its details and sub-parts.
- NEC analyzes both terms jointly as compensation event. The Contractor should prepare a quotation and submit it to the Project Manager for acceptance. This quotation will take into consideration both time and cost factors.
Both FIDIC and NEC contracts identify the special technical documents that specify the Employer’s quality requirements (Employer’s Requirement, Specifications etc.). These documents show the quality requirements of work, required workmanship, plant, and materials.
- NEC contract has an obligation for both parties (Contractor and Project Manager) to notify the other when they detect any defect. Therefore, they can manage it to limit the time and cost impact.
- FIDIC does not have such obligation.
An advantage I find in FIDIC, and not in NEC, is the availability of several contract forms depending on who does the design. This facilitates the allocation of risks by choosing the right contract form (Silver, Yellow or Red). Also, this is beneficial in big and complex projects where different companies are involved by implementing the relevant contract forms depending on the specific role of each company.
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