Climate Change in the Infrastructure Sector and NEC4’s Option X29

Kate Knox and Michael O’Connor

Supporting the infrastructure sector’s journey to reduce carbon emissions to achieve net-zero emissions, the NEC4 has published a new tool: Option X29 (Climate Change).

As well as parts of the sector being significant contributors to carbon emissions, the sector suffers, first-hand, the effects of climate change, with increasingly extreme weather conditions encountered on construction sites, alongside flooding and other adverse environmental conditions.

Having advised the water and sewerage sector, we have seen the increasing challenges facing that sector. In particular, the extremes of:

increased surface water and sewer flooding, and
the Summer’s higher temperatures and reduced rainfall impacting already scarce water resources.

With the NEC suite of contracts being favoured by many in the infrastructure sector, we have welcomed the recently published Option X29 and its guidance notes.

Option X29 is intended to be used to reduce the impact on the climate of:

the works / service, and/or
the end product of the works / service.

So how will it operate?

Having advised the water and sewerage sector, we have seen the increasing challenges facing that sector.

The climate change requirements are stated in the scope. Note there is an opportunity for the contractor/consultant to later propose changes to the scope to further reduce the impact of the creation, operation, maintenance or demolition of the works/services on climate change. The project manager is not obliged to accept the proposal.
The contractor/consultant produces its climate change plan, setting out its strategy for achieving the climate change requirements in the scope.
Financial incentives (positive and/or negative) can be applied to any of the client’s climate change targets via a performance table. This is optional.
If Option X18 (limitation of liability) applies, payments under the performance table are not subject to those limits, as is the case with delay damages and low performance damages.
The contractor/consultant reports performance against the targets in the performance table at specified intervals.
Collaboration features in this clause, with a requirement for the contractor/consultant to collaborate with identified climate change partners.
The early warning regime applies to this aspect of the works/service.
Adjustments for compensation events are provided for, particularly where the performance table is used and linked to financial incentives. The standard eight weeks’ time bar is applied (with the usual exceptions), in the case of late notification.

What climate change requirements can be covered?

Suggestions include:

levels of recycling,
use of renewable power on site or electric vehicles,
reducing waste generation, designing out waste, designs that reduce carbon emissions etc.

The climate change requirements may specify the rights of the parties to use, disclose and publicise information relating to climate change and the permitted purposes for doing so.

Using the performance table

Clients can use the performance table to create meaningful climate change targets on aspects such as net zero carbon emissions or sustainable development.

Top tips when deciding if and how to use the performance table:

Information in the performance table does not form part of the scope. In order to be treated as a ‘defect’, the climate change requirements must be included in the scope.
The ability to meet a target needs to be within the control of the contractor and specific to the project in question. It will be difficult to operate targets which may be impacted by decisions made by others, including the client, e.g. optioneering of design solutions, factoring in affordability.
Compensation events may lead to adjustments to the performance table. This may not be a straightforward exercise. Consider restricting the table to only a few requirements; otherwise, administering this aspect could be time consuming/cumbersome and may lead to disputes.

A failure to comply with a process for providing the works/service (eg using renewable energy) won’t be a ‘defect’; though it will be a failure to ‘provide the works’ in accordance with the scope. In which case, how meaningful is that requirement going to be if you choose not to apply financial incentives?
Is the intention for the financial incentive to be applied as an exclusive remedy or is the defect (if it is deemed to be a defect) also intended to be remedied?
Compliance with climate change requirements will be taken into consideration in the contractor’s prices, particularly where negative financial incentives are imposed.
This regime potentially overlaps with Option X17 (low performance damages) and Option X20 (KPIs) and so should not be used alongside either.

Of course, Option X29 is just one tool available to the industry in its journey to reduce carbon emissions to achieve net-zero emissions and achieve greater sustainability. Alongside the contractual mechanism, there needs to be the right behaviours being adopted by the parties and their supply chain, combined with the support of other stakeholders. Great to see this development in the standard form!

How to: navigate the NEC4 engineering and construction short contract

Kate Knox and Michael O’Connor

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