Option X29 NEC4: Promoting and encouraging sustainable development through construction contracts

The inclusion of clauses in commercial contracts which encourage sustainability and positive climate change action is becoming increasingly commonplace. Funders and Investors are placing greater value on such concepts in addition to profitability.

The NEC and Option X29

The NEC – a body which publishes a range of standard form construction contracts – recently published for consultation a new Secondary Option clause (Option X29) for inclusion in its NEC4 suite of contracts. The aim of Option X29 is to encourage sustainability and positive climate change action on construction projects.

The consultation ended in May 2022 and we await publication of the final version of the clause.

How does Option X29 work?

• Option X29 includes ‘climate change requirements’ which are to be included in the scope as requirements for the contractor to achieve. These could be parameters specified by the client in a tendered contract, or are otherwise agreed between the parties to be included as part of the scope.
• The contractor must prepare the ‘climate change execution plan’ setting out how it will achieve the climate change requirements. This plan must be approved by the project manager. The project manager may reject the climate change execution plan and require the contractor to submit a revised version if the plan does not comply with the climate change requirements or otherwise would not allow the contractor to provide the works.
• Alterations to the climate change execution plan are compensation events (which may entitle the contractor to additional time and money).
• A failure to meet the climate change requirements is a defect which the contractor must correct.
• Either party must notify the other (an ‘early warning’) if they become aware of any matter which could affect the achievement of the climate change requirements.
• A ‘performance table’ can be included which specifies climate change related targets. Achieving the targets in the table could be incentivised by an adjustment to the prices (up or down). The performance table is not mandatory but the NEC encourages its use.
• ‘Climate change partners’ may be specified – this is a new role under the NEC and refers to individuals or companies that the contractor is required to collaborate with to achieve the climate change requirements.

Possible issues with Option X29

• Option X29 is an optional clause and so parties are free not to include it (although hopefully its use will become more widespread through companies wanting to make positive sustainability changes and/or stakeholder pressure to do so).
• It will require more effort to implement than many other of the optional X clauses. Although a lot of the onus is on the contractor, the client must also actively establish the climate change requirements and the project manager must administer the use of the clause. There is a danger this could be seen as off-putting or an additional expense.
• Careful consideration has to be given as to the content of the climate change requirements to make sure they are achievable and do not place undue risk upon the contractor (which would increase costs).

Application of Option X29 to other contracts

The procedures introduced in Option X29 could be applied to other forms of contract. It is fairly simple to understand and easy to implement if the parties are willing to do so. A simplified model of Option X29 could be adopted in almost any contract i.e. not utilising a performance table and simply providing a warranty that the contractor will comply with certain defined climate change requirements.

Carly Thorpe is a Partner and Adam Bertram is an Associate at Walker Morris.

How the firm can help

• It can update precedents to include Option X29 or similar clauses across a range of commercial and construction contracts.
• It can advise on the application and implementation of Option X29, its benefits, and potential issues to seek to avoid.
• Option X29 may be customised, so it can provide bespoke drafting to tailor this to your individual requirements.