Out-Law News | 04 Aug 2022 | 3:23 pm | 3 min. read
New clauses that can be inserted into NEC4 standard contracts have been developed to support the decarbonisation of construction projects.
Stacey Collins of Pinsent Masons, who was involved in the committee which drafted the clauses, said the clauses are the first of their kind to appear in a mainstream standard form contract. He said he expects bodies behind other standard form contracts popular in the infrastructure sector, such as JCT and FIDIC, to develop their own clauses to enable climate change issues to be more easily addressed in their contracts.
Anne-Marie Friel, also of Pinsent Masons, said she expects the new clauses to be widely adopted in countries where NEC4 standard contracts are commonly used. She said they are likely to be particularly popular in UK public sector construction contracts since they reflect the UK government’s push to ensure construction projects are aligned to the ‘net zero’ climate change targets the UK has committed to, as mandated in its ‘construction playbook’.
The ‘X29’ clauses are optional to use, flexible, and allow for climate change issues to be integrated into the NEC’s proactive approach to contract management.
The clauses allow ‘clients’ – the NEC term for the procurer of the works, supplies or service – to include ‘climate change requirements’ in the contract’s scope, which a contractor would have to comply with. The ‘climate change requirements’ clauses can be applied in different contexts, depending on what is suitable for any given project. An obvious example would be to mandate construction designs that reduce CO2 emissions, or that certain ‘low-carbon’ materials are used on a project. Collins said they can be used to address other greenhouse gases too or impose biodiversity obligations. Climate change requirements could also include requiring the use of renewable power on-site during the construction phase.
If understood and used properly, X29 creates a flexible, workable and thoughtful contract framework for managing and measuring climate change performance in contracts which can be adapted for a wide range of projects of all shapes and sizes
The X29 clauses also include an optional ‘performance table’, except where the relevant NEC form already includes a performance table, that allows clients to use financial incentives to encourage contractors to fulfil additional targets related to climate change, net zero and sustainable development. The table can also be used without incentives simply to measure and record performance. Unlike the climate change requirements, if there is a failure to achieve a performance table target it will not be considered a defect that has to be corrected.
Collins said: “The climate change requirements and the performance table do different things and the consequences of failing to achieve the climate change requirements or performance targets are materially different. It is important to appreciate those differences when working with the X29 clauses, and consider the risk-profile of the clauses.”
Friel said: “Once X29 is selected, compliance will be mandatory so users will need to quickly become familiar with the level of performance required. If understood and used properly, this creates a flexible, workable and thoughtful contract framework for managing and measuring climate change performance, including carbon and biodiversity, in contracts which can be adapted for a wide range of projects of all shapes and sizes.”
To encourage parties to share details of good practice with the wider industry or for regulatory reporting purposes, X29 also includes a clause that lets climate change data from a project be used, disclosed and publicised to others where appropriate.
Publication of the X29 clauses comes at a time when there is growing scrutiny on organisations over what they are doing to combat the climate crisis. Many governments around the world have set climate change targets aimed at, for example, curbing greenhouse gas emissions, and ultimately limiting the forecast rise in global temperatures which scientists have warned present a risk to people, property and business.
Decarbonisation of the infrastructure sector is essential if international governments are to achieve their climate change targets. According to the World Green Building Council, the buildings and construction sectors are responsible for 39% of global energy-related carbon emissions. Up-front carbon emissions released before the building or infrastructure is even used will be responsible for half the entire carbon footprint of new construction between now and 2050, it has been predicted.
Friel said: “Procurer clients need to be ready, willing and able to meet the challenges around decarbonisation as part of the preparations for any procurement. There is a skillset and competency investment required to produce effective X29 documents from day one, including climate change requirements and, ideally for optimum benefit, clued-up clients will also make use of the performance table option.”
“Suppliers will need to be conscious of the risk of climate-related defects caused by non-compliance and plan carefully from the outset of the design and delivery process to ensure they are providing solutions that are capable of meeting the requirements of X29 and also to ensure that they have the means of measuring performance,” she said. “For embodied carbon in particular, this is likely to require having good carbon data reporting from the outset of the process. This may drive increased use of a longer virtual design stage, to allow performance data to be analysed, before construction commences. Ultimately, this requires support and upskilling of the whole supply chain.”
Collins highlighted the fact that X29 clauses have been produced for use across the NEC4 suite of contracts, including the NEC4 ‘main contract’ and ‘subcontract' forms.
“If faced with a main contract clause, suppliers would want to consider the related subcontract clause for engaging their downstream suppliers for a consistent risk profile,” Collins said. He further advised suppliers to start engaging with their insurers and consider their approach to X29 and climate change risks more generally.
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