The NEC Form of Construction Contract in Hong Kong

Posted by Steve Thomas on Monday, August 27, 2012

Recent arrivals from the UK construction industry into Hong Kong may be interested to know that the NEC (New Engineering Contract) forms are being trialled in Hong Kong and those with NEC experience may find themselves in demand.

Test NEC Projects in Hong Kong
There have been approximately 10 trial projects to date around Hong Kong mainly using the main contract form (the ECC) although the PSC and Term Services Contracts have also been tried. The Hong Kong Government is the main user of the NEC although some other client bodies such as CLP and the Jockey Club have also used it. Several of these projects are target cost contracts while others use a lump sum version. It also appears that bills of quantities are often used instead of activity schedules which is different from the UK where activity schedules are the norm.

Tin Shui Wai Hospital to be Constructed Using NEC?
Feedback from these projects appears positive although there is still a long way to go in terms of learning how to operate the ECC effectively and efficiently. As all of these projects have been relatively small, it is unlikely that these projects have had to face the complexities and difficulties that come with big projects. The HK Government is now proposing to use the ECC for the design and construct of Tin Shui Wai Hospital which is a large (HK$2 billion) project. This project should provide an excellent opportunity for the ECC to demonstrate its capabilities and its suitability for Hong Kong.

Is Hong Kong Ready for the NEC?
Another piece of interesting NEC news is a recent Society of Construction Law (‘HKSCL’) Hong Kong paper entitled “Is Hong Kong Ready for the NEC’ by Keith Keown. The paper notes that the increasing interest in the NEC in Hong Kong and endeavours to apply lessons learnt in the UK to the local construction industry.
The paper focuses on the ECC and the project management process that is embedded in the contract. The paper notes that the various steps to this process (early warnings, risk reduction meetings, programme updating and compensation events) have been difficult to implement in the UK and it is likely the same problems will arise in Hong Kong. The importance of bold and decisive project managers as well as the need for good programming/planning capabilities is highlighted.

The paper also discusses dispute resolution emphasising the importance of prompt and binding dispute resolution. Statutory adjudication provides this in the UK but there is no similar regime in Hong Kong and the paper suggests this could undermine the effective use of the ECC in Hong Kong. The paper finishes with 13 proposals that should help with the implementation of the ECC in Hong Kong. The paper is available from the SCLHK website.

NEC Construction Conferences in Hong Kong
The HKSCL is organizing a one day conference on 26 October 2012 which will be focusing on the NEC.
Also, the Hong Kong Lighthouse Club’s annual conference on 17 September 2012 will be looking at the issue of collaboration and collaborative contracts.