Promoting sustainable development: NEC, IChemE, FIDIC contracts
27th September 2022
The inclusion of clauses in commercial contracts which encourage sustainability and positive climate change action is becoming increasingly desirable and commonplace. Funders and Investors are placing greater value than ever before on such concepts, in addition to profitability. In this third and final instalment in our series of articles considering sustainability clauses, our Construction & Engineering and Infrastructure & Energy experts Carly Thorpe and Adam Bertram consider optional clauses to be used in a range of standard form contracts.
NEC and Sustainable Development
We discussed in our previous article the new Option X29 to be introduced into the NEC suite of construction contracts to encourage sustainability.
The NEC also contains two other clauses which could help the parties focus on sustainable development.
Clause X20 NEC4 ECC – Key Performance Indicators (KPI)
This clause incentivises the Contractor based on its performance, by reference to an incentive schedule. The parties could agree KPIs which relate to sustainable development/environmental performance. The Contractor is paid extra for meeting or exceeding a KPI, which encourages the Contractor to consider construction options which improve environmental performance.
However there is no penalty for failing to meet a KPI. The Contractor could, therefore, decide not to choose sustainable options. As such any mandatory requirements in respect of environmental performance need to be included in the Scope rather than the KPI incentive schedule, so that failure to achieve that requirement would be a breach.
Clause X21 NEC4 ECC – Whole life cost
This clause allows the Contractor to propose a change in order to reduce the cost of operating and maintaining an asset. This is not specifically climate change or environmentally focused, but could be used for sustainability changes. However, there is nothing to encourage the Contractor to propose changes that are costs-neutral or increase the cost of the works even if they would be environmentally beneficial. Parties could amend this clause to make it specifically refer to climate change/sustainability or to introduce an incentive for sustainability improvements.
IChemE and Sustainable Development
The IChemE main contract conditions require the Contractor to develop implement and maintain the Environmental Plan to detail how the waste generated by the project will be disposed of. All parties are required to comply strictly with the requirements of the Environmental Plan.
The conditions include a duty on parties to “establish a properly considered analysis of the impact on the environment of the plant, its products, by-products and waste”.
The IChemE contract is focussed on environmental protection and waste disposal. This makes sense because it is traditionally used for projects in the process industry, where there is a greater risk of contamination. However any specific performance requirements regarding sustainability will need to be included in the technical specification or in a bespoke clause.
FIDIC and Sustainable Development
The FIDIC suite of contracts includes an obligation on the Contractor to take all necessary measures to protect the environment both on and off site. The Contractor is required to comply with any environmental impact statement for the Works (2017 editions only), and to limit damage and nuisance to people and property resulting from noise pollution and other results of the Contractor’s operations or activities.
The Contractor must ensure that emissions, surface discharges etc. will not exceed the values stated in the Specification. This is a useful clause provided that all environmental requirements are set out in the Specification.
In November 2021 FIDIC published its Climate Change Charter which sets out in basic terms how to address climate mitigation, adaption and resilience in the built environment. The Climate Change Charter has not yet had an impact upon drafting, but further changes are expected to enshrine positive sustainability action into the standard form contract.
How we can help with drafting to promote sustainable development
Walker Morris’ Construction & Engineering and Infrastructure & Energy experts can:
- Provide bespoke drafting to enhance and strengthen the sustainability clauses included in the standard forms.
- Advise on the application and implementation of other sustainability clauses, their benefits, and potential issues to seek to avoid.
Please get in touch with Carly or Adam if you have any queries or would like to know more about encouraging sustainability through construction contracts.
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