Shepherd’s subcontract ‘annuls NEC’s principles’

Shepherd Construction’s amendments to the NEC subcontract form attempt to subvert or nullify its key principles, according to the Confederation of Construction Specialists (CCS).

"The worst aspects of this subcontract are: the imposition upon the subcontractor of financially unlimited indemnification obligations; the failure to observe the payment and dispute resolution provisions of the Construction Act; the subversion of the principle of full, stand-alone, back-to-back subcontracting, pioneered by the NEC; the imposition of a high monetary liability for design failures; and the deletion of key compensation events," the CCS stated in its most recent review.

"The outcome of a risk/reward review would certainly indicate that this amended form of subcontract is not worth taking on, unless Shepherd is prepared to withdraw many of the amendments."

Marked against the Construction Act, the 29-page form scored -13%, principally for poor payment periods. The form sets the final date for payment for the first, interim and final subcontract payments at 47 days after the due date.

The CCS noted: "It is possible that the final date for payment for the first payment may be up to 74 days after the due date."

The pay-if-paid clause related to upstream insolvency is "legitimate but cynical".

Shepherd’s amendments to the dispute resolution provisions are "prejudicial to the interests of the subcontractor, because they introduce procedural delays and load liability for the adjudicator’s fees and expenses, together with those of any legal or technical advisor on to the referring party, which is the subcontractor in the vast majority of cases".

Shepherd said: "The third edition of the NEC contract is due out in September. We are awaiting Sir Michael Latham’s review of the workings of the Construction Act. In light of both, we will be reviewing our subcontract agreements.

"Our own supply chain survey indicates our subcontractors are very happy working with us and our average payment to subcontractors across the company is 33 days."