Why Australian projects should consider adopting NEC4 contracts

NEC4 is the fourth edition of the New Engineering Contract suite, published by the Institution of Civil Engineers (ICE), to promote collaborative, clear and efficient project management in construction and engineering projects. First launched in the UK in 1993, NEC has become the leading suite of contracts endorsed for public sector works and services procurement by governments in the UK, the Hong Kong Special Administrative Region (SAR), South Africa and, most recently, Singapore.

The contract structure and drafting style of NEC4 are designed to drive collaborative behaviour by identifying issues early, introducing disciplined programme management, and adopting a decision-making approach that is intended to prevent small problems becoming claims.

Contracting in Australia is facing serious challenges. Traditional procurement models are associated with adversarial tendencies and there is a culture of ‘blame and claim’ and passing risk down the contractual chain, often to parties not best placed to manage those risks; along with lowest cost tendering and fixed price models.

Whilst these approaches have been adopted for a reason, economic factors in Australia and globally have led to volatility and uncertainty within projects: inevitably resulting in time and cost overruns and claims, more money spent on lawyers and other specialists, and distraction from project delivery. 

Various governmental and industry bodies have called for reform to infrastructure procurement and delivery. Infrastructure NSW has identified (24-page / 2.3MB PDF) that “collaboration between government and industry is essential to deliver high quality infrastructure for the people of NSW”.

NEC4 offers a way of addressing these challenges. NEC contracts are not new to Australia. The Mt Mercer Wind Farm project, completed just over a decade ago, was one of the first to adopt NEC in the region and it was delivered on time and on budget. That early success demonstrated NEC’s potential to drive collaborative behaviours and proactive risk management but, unlike in other international markets, this did not lead to the wide adoption of NEC in Australia.

NEC has featured in other projects, such as:

• Sydney Water, in 2019, adopted the NEC to support the procurement and delivery of its ‘P4S: Partnering for Success’ 10-year programme of capital works and infrastructure projects. The programme has adopted the full suite of NEC4 contracts and has utilised an enterprise approach under the ICEs ‘Project’ 13 model; 
• Intergovernmental organisation SKAO, in 2021, chose the suite to deliver the world’s largest $4 billion (approx. US$2.68bn) radio telescope observatory; and 
• More recently, in 2024, Queensland Hydro announced the adoption of the NEC4 to deliver works packages valued at A$14bn as part of the Borumba pumped hydro project. This, alongside the use of the NEC in New South Wales by private entities such as Ausgrid, has signalled that both public and private parties are increasingly open to alternatives to traditional Australian forms.

The adoption of NEC by these projects and organisations is a sign of increased interest in the market, reflecting a growing appetite for change. With a multi-billion-dollar infrastructure pipeline and persistent delivery challenges, market stakeholders are looking for contracting models that move away from adversarial norms and toward collaboration and real-time risk management. Although success depends on more than just signing a different form of contract, NEC4 presents an opportunity, in conjunction with changes in mindset and behaviours, for better project outcomes.

Key features include: 

• The NEC suite is clear, simple and easy to understand, with plain English, present tense and no ‘legalese’; 
• Both parties must flag, and are incentivised to do so, risks as soon as they arise, forcing issues into the open while they are still manageable instead of sweeping them under the carpet;
• The compensation event mechanism is formed of notification, quotation and assessment procedures which manage the impact of prescribed events on both time – the ‘Completion Date’ and ‘Key Dates’ – and cost, the ‘Prices’.  Time and cost are assessed in real time with a focus on forecasted, or prospective, assessment; and
• NEC requires real-time administration and forward-looking processes. The project programme and budget are continually updated, and decisions cannot be deferred without consequence. Cost transparency is a focus, particularly for target cost options, with NEC’s processes are designed to prevent disputes before they crystallise, rather than storing problems up for resolution later. 

NEC4 is a framework designed to make contract management proactive, collaborative, and transparent. By combining plain language with mechanisms like early warning notices and structured change management, NEC4 aims to keep projects on track and disputes to a minimum. Its emphasis on real-time decision-making and mutual trust marks a clear departure from the reactive, adversarial approach that dominates Australia’s construction and engineering sector.

Although these mechanisms are powerful, they are not self-executing. NEC does not ‘fix’ delivery risk on its own. Parties cannot pretend that the suite will deliver on its promise if they do not engage with it as intended. Treating the suite as a drop-in replacement for traditional Australian forms may expose, and even amplify, familiar industry problems, including late decisions, incomplete information, and late crystallisation of claims.

The successful implementation of NEC requires a commitment to use the NEC as intended. Although amending the standard form is a commercial reality, parties should limit amendments to fine tuning and avoid extensive amendments to the point that the contract is NEC in name only.

Successful implementation also requires an engaged and appropriately trained delivery team with the time, delegated authority and contract management capability to run the processes in real time, and appropriate localisation of the standard contract terms for the project at hand. Simply replicating approaches taken on other major infrastructure projects elsewhere in the world will not work. From security of payment to design and liability provisions, bespoke amendments are required to align the suite with local statutory, common law and market positions in Australia.

These lessons highlight the critical truth that NEC4 cannot succeed if treated like a traditional Australian contract. Its processes demand cultural and operational change, including committed collaboration, empowered delivery teams, and thoughtful localisation. When these elements align, NEC4 can deliver better outcomes and fewer disputes as promised.

Co-written by Harry Smith and Juan Sanchez Nuesch of Pinsent Masons.