The NEC launches its Facilities Management Contract (part 1)

The NEC has added a facilities management contract to its stable. It hopes that its FM contract will be used for a range of FM contract approaches including total FM contracts, integrator contracts, multiple and single supplier FM contracts.

The latest addition to the NEC suite has the same feel as other NEC contracts: it is written in plain English, embraces the present tense and avoids legalese. People used to working with the NEC will feel at home with this contract as it promotes proactive project management and follows the ‘standard’ NEC structure: there are 9 core clauses that deal with main responsibilities, time, payment, compensation events and termination etc. The core clauses are supported by three pricing options: Option A (fixed price); Option C (target cost) and Option E (cost reimbursable). Finally, there are a number of optional W, X and Y clauses, which supplement the remainder of the contract.

To date, for FM contracts, NEC users have turned to the Term Service Contract (“TSC”). This has worked well, but the TSC didn’t deal with all the issues that are often found in other FM contracts. The new FM contract addresses some of these issues. For example, the term ‘Service Provider’ replaces ‘Contractor’ and ‘Service Failure’ elbows ‘Defect’ out of the way. The NEC has decided to keep much of the language and mechanics that you will find in the TSC. For example, the FM contact refers to the Client, Service Manager, Service Period, Accepted Plan, Affected Property and Early Warning Register. The pricing, compensation event and termination regimes are largely unchanged.

There are however a number of revisions and new clauses and they include:

Service Orders (core clause 19): this is a more streamlined process than the Task Order process as the contract suggests that an order is priced by the Service Manager, rather than using the ‘to and fro’ of quotations. The pricing remains based on the rates and prices set out in the Price List.

Mobilisation plan (core clause 33): the contract recognises that for most FM contracts, there will be a mobilisation period. However, the parties will have to make sure that the Contract Data includes a ‘tick in the box’ for a mobilisation plan. Clause 33 is light on detail as the NEC expects the Scope to set out the client’s requirements.

Demobilisation plan (core clause 34): most FM contracts also provide for an ‘exit period’. The NEC contract acknowledges this. Unlike a mobilisation plan, which is optional, the Service Provider is required to prepare a demobilisation plan. The detailed provisions regarding ‘exit’, such as updating asset lists, providing details of key third party contracts, TUPE obligations etc., are not included in the core clause and will have to be set out in the Scope.

Performance measures and Performance Table (clause 53): in keeping with traditional FM contracts, the NEC has included provisions that allow the Client to measure the Service Provider’s performance. If the Service Provider’s performance dips below the agreed measure, it is required to submit a rectification plan. The clause lacks the detail one would expect to see and which can be found in government contracts such as the Model Services Contract, but presumably the NEC would say that the Scope should address the detailed provisions.

Clause 53 makes it clear that deductions will apply if the Service Provider fails to meet the agreed performance targets and that it will receive an incentive payment for good performance.

It is likely that the parties will include Z clauses to bolster this part of the FM Contract. For example, there is no reference to a bedding in period, how the targets and deductions will apply during a bedding-in period, whether a ratchet will apply for repeated failures, earn back provisions and how critical failure events should be managed.

Service Provider’s design (X15): this borrows from the NEC ECC. It also contains basic provisions regarding intellectual property rights, though we anticipate that clients will amend these provisions.

Project Orders (X27): the optional clause allows the client to instruct the Service Provider to carry out works.

Change of Control (X28): the NEC recognises the importance of the identity of the Service Provider for longer-term contracts, and it has included change of control provisions in the FM contract.

We welcome the FM contract to the NEC suite and it is a useful ‘starter for ten’ as it contains a number of clauses and provisions which the TSC lacks. However, for more complex FM contracts, it is likely that parties will wish to include a series of Z clauses to make sure that the contract addresses the usual risks and matters that often crop up on outsourcing projects. Look out for our next blog when we will look at the areas where Z clauses may be required.

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