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Drafting tips: Z Clauses, NEC3- 17/02/2011
In light of the increasing use of NEC3, we thought it was worth recapping on three areas which users should take cognisance of when drafting “Z” clauses to the Engineering and Construction Contract (ECC). These are:
- Design Obligation;
- Works Information; and
- Indemnities.
1. Design Obligation – Option X15
Under ECC, the contractor does not take any responsibility for designs prepared for or on behalf of the employer.
There is also no core clause dealing with the standard of care to be exercised by the contractor when carrying out design. In the absence of Option X15 or any amendments to the contrary, the higher statutory standard of fitness for purpose would apply. On the face of it this may seem favourable to a client, however, there is a real risk that such an obligation would be uninsurable.
Instead, the design risk can be managed using Option X15, however the following should be noted:
- design responsibility in Option X15 is limited to that for “Defects in the works” due to the design rather than for the design per se. This constitutes a further limitation on the contractor’s design responsibility particularly considering the definition of Defects (see below);
- there is no level of care specified in Option X15, for example, that of a competent designer experienced in similar projects.
2. Works Information
The Works Information is crucial as it defines the contract. The following should be considered from a drafting perspective:
- the definition of “Defects” is linked to the Works Information so without watertight Works Information there could be a situation where the works are defective but the contractor is not liable as he has complied with the Works Information;
- the design obligation in Option X15 is also linked to the Works Information. If this Option is selected, the contractor could escape liability for Defects in the works providing he can show he used reasonable skill and care to ensure his design complied with the Works Information;
- the employer takes the time and cost risk for inadequacies and inaccuracies in the Works Information.
3. Indemnity – clause 83.1
It is not clear from the drafting in ECC whether this indemnity covers only the risks in core clause 8 or all risks under the contract. Also does it only relate to claims by third parties as with other standard form contract indemnities?
On a wide interpretation the ECC indemnity could potentially stretch beyond third party claims to cover all losses suffered by one party as a result of any event which is at the other party’s risk. This would include damages over and above those recoverable at common law and the usual test of remoteness would not apply. Such an indemnity is unlikely to be covered by the contractor’s insurance policy.
In these circumstances and for clarity, it is advisable to amend the clause so it is clear what risks are covered and whose claims are covered. Regard should be had to the insurance table at clause 84.2 when amending this clause.
Conclusion
It would be prudent to include specific “Z” clauses in your contract to avoid being caught out by these particular drafting anomalies.