NEC aim to incentivise carbon reduction

The NEC has just produced a new X29 Option clause for consultation, aimed at providing a contractual mechanism to reduce the impact of works on climate change.  NEC has acknowledged that achieving net-zero emissions and sustainable outcomes of projects is principally a technical issue, to be addressed in the Contract Scope, but there is a growing view in the industry that contract conditions can be used to further support sustainability and net-zero.  We are aware of clients increasingly requiring specific contract obligations on contractors and their supply chains to address climate change and the drive to achieve net-zero and increased sustainability.

Some of the key proposals in the new X29 option clause include:

• Climate Change Requirements:  these will be stated in the Scope and comprise things the Contractor has to provide or comply with.  Failure to do so will result in a Defect that the Contractor will be required to correct.  Contractors will need to make sure the Climate Change Requirements are achievable and Clients will need to be aware that any unduly onerous requirements may lead to potential bidders refusing to bid or including substantial risk allowances. 
• Performance Table: it is expected this will be commonly used where X29 is included, and will set out any targets relating to climate change, net-zero, sustainability etc.  This may involve positive or negative incentivisation, and any drafting will need to be clear so that performance can be properly tracked and measured and that it is clear when any incentivisation payments are to be made.
• Early warnings: these are to be notified for events which may impact the achievement of the Climate Change Requirements.
• Climate Change Execution Plan: this should set out the strategy for achieving the Climate Change Requirements and any Performance Targets.  As currently drafted, the Execution Plan will either be submitted as part of the tender process and included in the Contract Data or there is an option for the first version to be submitted a fixed period after the Contract Date.  There is no financial sanction on the Contractor if they fail to do so, but this is something that Clients may look to amend.
• Disclosure: wording has been included allowing for climate change information to be used, disclosed and publicised to others. 
• Compensation Events: a clause has been included allowing for the adjustment of the targets etc in the Performance Table where these are affected by compensation events or agreements in respect of Defects or acceleration.
• Contractor’s Proposals: the Contractor is entitled to propose changes to the Scope, and this will include changes that may reduce the impact on climate change in both the construction of the Works and the future operation, maintenance or demolition of them.
• Performance measurements: a regime has been included for reporting on performance against the targets in the Performance Table and a process for proposing improvements where it is forecast that a target may not be achieved.  Parties will need to consider the frequency and nature of any reporting to ensure regular and early awareness of any potential issues.

Option X29 can be downloaded by registering interest your interest via the NEC website here. The clause has been published as a consultative version to enable users to consider it, potentially trial its use and to provide feedback to the NEC regarding any impressions and any specific issues identified with the drafting or operation of the clause.  The consultation will close on 13 May 2022.