Construction and the drive to Net Zero

The New Engineering Contract (NEC) is the Government’s preferred form of construction and engineering contract for major works.  It is also one of the first of the standard form building contracts in the UK to address the issue of climate change with regards to construction projects.

The UK has led the pack of major world economies to pass a net zero emissions law with the target to reduce greenhouse gas emissions to Net Zero by 2050.  The construction industry has responded including with new green policies developed by groups such as the Construction Leadership Council; a cross sector organisation which is taking forward initiatives to accelerate the industry’s transition to Net Zero. These policies include milestones for carbon emissions reductions and adaptions of construction practices to tackle carbon targets.

The drive for a cleaner environment is also evident with property developers making Net Zero a key consideration and a target in their tender processes. Some main contractors have also started to assess their supply chain, including sub-contractors on the basis of their green credentials.

Addressing Net Zero in the contract requirements of consultants and contractors is already happening in a range of individual ways.  The drive will achieve much support where the industry’s main standard forms of construction contract seek to standardise terms and conditions to make sustainable operational and working systems a core requirement, along with promoting co-ordination and collaboration between parties to a construction project with clear strategy and targets.  This what the NEC has now set out to do with its new provision, X 29.

The NEC is in fact not just one contract but a family of contracts covering construction work, consultant professional services and more besides. Each contract in the NEC family is written and structured in a common format, including with bolt on options to the core contract terms which users can select depending on the relevant project. X29 is one such optional bolt on and the NEC has produced a version of X29 for each of its contracts.

The requirements of X29 include:

• The contractor/consultant is required to collaborate with what are defined in X29 as the Climate Change Partners who are to be identified in the Climate Change Requirements. Climate Change Partners are people or organisations who contribute to the achievement of the Climate Change Requirements which are specified in the contract.
• There is the option to include in the contract a Performance Table stating the targets the contractor is to achieve. While failure to achieve Performance Table targets is not to be regarded as a defect, the Table is to include how payments due under the contract can be varied by way of incentives where actual performance is higher, or lower, than the targets.
• The parties to the contract are to give an early warning to the other as soon as either becomes aware of any matter which could adversely affect the achievement of the Climate Change Requirements.
• A climate change plan is to be submitted setting out how the contractor or consultant is to meet the Climate Change Requirements.
• Compensation will become due, whether in the form of additional time or payments, where specified events impact on the Performance Table. This would apply where say the Employer issues variation instructions or where other factors arise which are not the fault of the contractor or consultant but which impact on the undertaking of the contract.
• The contractor/consultant is to report on its performance against the targets in the Performance Table and the parties to the contract are to review how performance can be improved where necessary.

While new Option X29 must be actively selected by parties for inclusion in a contract, the NEC has stated that new Option X29 is intended to support, incentivise and tangibly demonstrate carbon reduction initiatives on future building work. Beyond the NEC, standard form contracts published by the JCT have their own supplementary provisions encouraging sustainability and positive climate change action on a construction project. We are likely to see a wider range of construction related contracts in the UK follow suit with comparable provisions as the construction sector commits to the achievement of a Net Zero environment.