Earlier this year saw the launch of the new NEC4 Facilities Management (“FM”) contract, together with an accompanying Subcontract, Short Contract, and Short Subcontract. The latest additions to the NEC contract family have been welcomed by those seeking a tailored contract solution for the governance of facilities management services, especially as the market continues to see very notable growth in the outsourcing of such services to external providers.
With the NEC contracts renowned for their flexibility, it should come as no surprise that the new FM suite is intended to support a wide range of FM contract approaches. It includes three different pricing options (NEC Main Options A, C and E), can be used for both ‘Hard’ and ‘Soft’ FM services, and is suitable for multi-jurisdictional use. It also follows the NEC approach of using plain and simple language, with a view to ensuring complete understanding between the parties and thereby stimulating good contract management.
The general concept of a standard form term service agreement is not new for NEC. When the NEC3 suite was first published back in 2005, it included a new ‘Term Service Contract’, which has been successfully used on countless FM arrangements since (and indeed still can be). However, the NEC says that the new FM contracts have been “specifically developed for the FM sector” and include “market recognised phrases and definitions,” meaning that they are more commercially aligned with the FM sector and its practices.
The FM contracts do, nonetheless, have a very similar structure and feel to the TSC suite. That said, there are some notable differences and these include the following:
- Core clause 33 provides the Client with the option of requiring the Service Provider to submit a mobilisation plan for onboarding purposes. Core clause 34 then goes on to legislate for the Service Provider’s smooth exit, by requiring a demobilisation plan as well (this aspect is mandatory rather than optional).
- Secondary options X9 (Transfer of rights) and X15 (The Service Provider’s Design) are included, despite neither featuring in the TSC. These additions recognise the potential for term service arrangements to include an element of design, and provide a useful drafting base for the parties to ensure all technical obligations (covering both on-site activity and preparatory design) are covered.
- Unlike in the TSC, secondary option X20 (Key performance indicators) does not appear in the FM contract. Instead, the new concept of the ‘Performance Table’ is included in the core clauses, reflecting the fact that service level arrangements are a central requirement of the FM industry and are likely to be needed in almost all cases. The Performance Table states the targets that the Service Provider is to achieve and also sets out the adjustments to payments if a measured performance is higher, the same, or lower than its target. The inclusion of financial sanctions for poor performance represents another shift away from the TSC approach, with secondary option X20 envisaging only payment uplifts to incentivise good performance.
- Core clause 19 covers ‘Service Orders’. The provisions here are not dissimilar to the ‘Task Order’ wording at core clause 19 of the TSC. However, whereas the Task Order mechanism includes a quotation procedure, the work under a Service Order should already be allowed for in the Price List. In essence, the Service Order mechanism is intended to cover the scenario where certain work is envisaged at tender stage but the Client has not yet decided whether to actually instruct that work or when. The NEC envisages this being particularly useful for reactive FM services.
- Secondary option X27 (Project Orders) allows the Client to ‘bolt on’ a completely new service to its FM contract. It is the lengthiest of all the FM secondary options and almost comprises a short-form NEC contract in its own right, with a standalone programme clause and compensation event provisions. X27 is likely to be useful where mini projects may need to be instructed during the Service Period (for example the refurbishment or rewiring of a designated room or area within the Affected Property).
It is also fair to say that the FM contracts are more ‘skeletal’ than the TSC contracts (and indeed the other NEC forms as well) – a somewhat inevitable consequence of their versatility and reliance on the technical annexures (Scope, Performance Table etc.) to dictate the detail of the parties’ contractual duties and obligations. Whilst undoubtedly a welcome addition to the NEC suite, the FM contracts are not something that can be treated as an ‘off the shelf’, low maintenance form of contract. Rather, they require careful and collaborative input from technical, legal and contract management personnel, to ensure that the full commercial agreement of the parties is accurately and comprehensively captured.
If you require further information about the matters raised in this article, please contact Laura Reeve.