At the end of January 2021, the NEC launched a new suite of contracts dedicated to the facilities management industry. In this Law-Now, we outline the key features of the NEC4 Facilities Management contracts and outline practical steps to using the new suite.
The NEC has developed the new suite of facilities management contracts following research into the facilities management industry, stakeholder workshops with Institute of Workplace and Facilities Management members and individual consultations, to ensure the suite was built fit for purpose while retaining the best practice principles and features of NEC4 contracts. It is intended to take the place of the NEC TSC, which has been taken up by the industry, in providing an NEC based solution to facilities management contracting.
With four separate contracts, six user guides and two flow charts, the suite is designed to be used for all types of facilities management procurement and delivery strategies including “total FM” / integrated services FM contracts, managing contractor FM contracts, and single and / or multiple supplier FM contracts.
The New Contracts and Which to Use?
There are four new contracts depending on the nature of facilities management services required.
When to use
Facilities Management Contract (FMC)
This can be used where a Client is appointing a Service Provider for a period of time to manage and provide any type of facilities management services.
Facilities Management Subcontract (FMS)
This can be used where a Service Provider is appointing a Subcontractor, also for a period of time, to manage and provide a part of a service where the Service Provider has been appointed under the NEC4 FMC.
Facilities Management Short Contract (FMSC)
This can be used where a Client is appointing a Service Provider for a period of time to manage and provide any type of facilities management services which do not require sophisticated management techniques, comprise straightforward services and impose only low risks on the parties.
Facilities Management Short Subcontract (FMSS)
This can be used where a Service Provider is appointing a Subcontractor, also for a period of time, to manage and provide any type of facilities management services which do not require sophisticated management techniques, comprise straightforward services and impose only low risks on the parties and where the Service Provider has been appointed under the FMC, FMS or FMSC.
The intent is that the FM suite will provide greater continuity and familiarity to NEC users in the lifecycle of developing and maintaining their buildings, as the new contracts can also be used with any of the other contracts in the NEC4 suite as either main contracts or subcontracts such as the Design Build and Operate Contract (DBO), Alliance Contract (ALC) and Supply Contract (SC).
Key features of the NEC4 FM contracts
The contracts have been updated from the NEC4 suite specifically for the FM industry, whilst retaining the best practice principles and features of the NEC forms of contract. All NEC4 contracts, including the new FM contracts, are designed around the following three principles:
to stimulate good management of the relationship between the two parties to the contract and, therefore, of the work involved in the contract.
to be capable of use in a wide variety of commercial situations, for a wide variety of types of work and in any location around the world.
to be clear, simple and written in plain English, using language and a structure which is straightforward and easily understood.
The NEC TSC forms of contract were not written for FM purposes and so required considerable adaptation to bring the document in line with FM contracting practice. The new NEC4 FM Suite offers an approach much more aligned with FM concepts and practice. It brings in FM provisions around onboarding, exit strategy and performance monitoring albeit in a vanilla fashion, but more complex key FM areas such as data protection and employment will still have to be incorporated as bespoke Z clauses (this being a consequence of writing contracts for general use).
The Pricing Options
The FMC features three main pricing options:
Option A - Priced contract with Price List: this allows for a combination of lump sum and remeasurement of rated items. The contract allows complete flexibility in how the Price List is created allowing the parties to determine the level of detail and the way in which the activities of the Service Provider are to be paid for.
Option C - Target contract with Price List: a target cost is determined for the services provided by the Service Provider on a lump sum and remeasurement basis. The Service Provider is then paid for the services provided on a cost reimbursable basis (Defined Cost plus Fee). At the dates stated in the contract the costs incurred are compared to the target cost to assess the Service Providers financial performance. Any savings made or overspend incurred will be shared between the parties on a pre-agreed percentage split. This approach incentivises performance and encourages collaboration between the parties.
Option E - Cost reimbursable contract: the Service Provider is paid for the service provided on a cost reimbursable basis providing complete flexibility for the Client to develop and change the service required throughout the contract period (the Service Period).
As is common with NEC contracts, the NEC4 FM suite includes a range of secondary options to allow the Client to tailor the contracts to suit its specific needs and allocate risk appropriately.
Secondary options available include:
information modelling (BIM),
extending the Service Period,
change in control of the Service Provider, and
Client rights to terminate the Service Provider’s obligation to provide the service in certain circumstances.
A key feature of the NEC4 suite was the ‘early warning’ process whereby if either party becomes aware of any matter which could affect time cost or quality, it is required to notify the other party immediately. This procedure is also included in all the FM contracts.
The FM contracts provide a clear and precise process for evaluating the cost and, where appropriate, time implications of compensation events, which include events arising from Client Scope changes.
The end result is that the costs are continually updated and agreed as changes and events happen.
Service Provider’s proposals
The Service Provider is able to propose a change to the Scope which reduces the price of the service. The Client has the option to either accept, not accept, or request a quotation prior to making a decision. The Service Provider shares in the cost savings of opportunities that it initiates, either through the target share (Option C) or by recovering a percentage of the saving (Option A).
A secondary option has also been developed which allows the Service Provider to identify opportunities to change the Scope which, while it may increase the price of the service, would reduce the cost of an asset over its whole life. Again, through the procedures in this option, both Parties can share in the saving created.
Service Orders provide the facility for the Client to call off work identified in the Scope as and when required, for example, for reactive maintenance works.
The work to be called off under a Service Order is identified at tender stage, and rates and prices for the work included in the Price List within the FM Contract. The form of the Service Order is detailed in the Scope, which will also state any processes to be followed in the issue and execution of Service Orders and any constraints. This allows the Client to create a Service Order process that is specific to the service being undertaken and their own requirements.
Project Orders (FMC)
Project Orders are a secondary option, which are different to Service Orders as they allow the Client to instruct additional work which has a level of complexity, coordination and risk which requires a programme for its execution and which may include changes or additions to the Scope and the Price List.
Additional incentives, both positive and negative, can be included in Project Orders to encourage the Service Provider to complete the additional work on time.
Service Providers plan(s)
The Service Provider is required to provide a detailed plan of how it will provide the service and as a key management tool this has to be kept updated as required by the contract, so that the parties know when and how the Service Provider will provide the service.
In addition to the plan, the Client can also require mobilisation and demobilisation plans to be produced and for the Service Provider to provide details of how they will provide business continuity if they suffer an event which disrupts their normal business operations.
The Service Provider is required to provide the service in accordance with the Scope, part of which will operate as a service level agreement. A failure to provide the service in accordance with the Scope will be a Service Failure. The contracts contain provisions to deal with these, recognising the different reasons, consequences and corrective measures (if these are possible) that may be needed. This provides a clear, robust and yet flexible method of driving achievement of the agreed service levels.
The Performance Table is a key part of the contracts and used to incentivise the Service Provider financially, both positively and negatively to achieve or better the service levels set by the Client.
The contract provides complete flexibility in the content of the Performance Table allowing the Client to identify the performance targets, levels, values and timing of assessment that will drive the aspects of the service delivery that is key to it.
The FMC includes a secondary option to be used for contracts under which the Service Provider is required to undertake design as part of the service.
The secondary options deals with the issue and acceptance of any such design, the standard of liability (which is set at reasonable skill and care), ownership and use, and the requirement for professional indemnity insurance.
When are the new FM contracts available?
The FM suite was launched on 26 January 2021. The first documents available are the FMC and FMS contracts and their flow charts, in addition to 4 user guides. However, these are currently only available in e-view from NEC, as pre-publication editions.
The contracts and documents will be available in hard copy and to print later in the year and on the NEC Digital Library from June 2021.
The facilities management sector is extensive. The new NEC4 FM contracts and their supporting documents are a step forward in enabling the sector to offer more integrated and consistent procurement strategies, adding value to the supply chain and developing stronger, more collaborative, relationships and ways of working across the lifecycle of a building.