NEC’s proposed climate change clause an ‘important tool’ to reach net zero

Stacey Collins of Pinsent Masons also said secondary option X29 (3-page / 683KB PDF), a draft of which was published for consultation earlier this month, would give parties a structure “to agree a fair and transparent risk profile for addressing the climate change outcomes of particular works” and to help make consideration of  climate change factors “an essential part of agreeing a contract in the same way that you might consider the position on something like intellectual property”.

Collins, a member of X29’s drafting committee, said there was “no doubt that the world is facing a climate emergency” and warned that both the construction and infrastructure sectors were currently “key contributors” to CO2 emissions. “In order to decarbonise these industries, we need to make the way in which we maintain, operate and build assets more sustainable,” he said.

The proposed clause would allow ‘clients’ – the NEC term for the procurer of the works or service – to include ‘climate change requirements’ in the contract’s scope, which a contractor would have to comply with. Requirements could include requirements like the use of renewable power on-site or construction designs that reduce CO2 emissions. Failure to comply would be considered a defect that a contractor would have to correct.

Guidance issued alongside the draft clause states that “careful consideration” must be given to any climate change requirements “to make sure they are achievable and do not place undue risk upon the contractor” and warns that “unduly onerous” requirements “may lead to bidders refusing to bid for the work.” The guidance adds that while the requirements are likely to be set by the client, they can also be requested from bidders or developed between bidders and clients. The preferred approach will need to have regard to any applicable procurement laws that apply to the relevant works or project.

The X29 clause also includes an optional ‘performance table’ that allows clients to use financial incentives to encourage contractors to fulfil additional targets related to climate change, net zero and sustainable development. The table can also be used without incentives simply to measure and record a contractor’s performance. Unlike the climate change requirements, if the contractor fails to achieve a performance table target it will not be considered a defect that has to be corrected.

To encourage parties to share details of good practice with the wider industry, X29 also includes a clause that lets climate change data from a project be used, disclosed and publicised to others where appropriate. The disclosure clause also takes into account that firms and public bodies are increasingly required to report and publicise their climate change credentials by government and regulators.

Collins said: “X29 is not the full answer - a firm cannot just use the clause to tick a climate change box – and clients will need to think long and hard about what they want to achieve ahead of the procurement stage. Despite this, X29 will be a way of holding a successful bidder to the climate change promises they may have made during the tender process, and its mechanisms will make it an important tool for clients and contractors alike as they work to decarbonise their industries.”

The consultation period ends on 13 May 2022, with a finalised version of X29 expected to be published in mid-June. Although the consultation version of X29 is focussed on the NEC4 Engineering and Construction Contract, the intention is to implement it across the NEC4’s entire suite of contracts subject to any considerations arising out of the consultation.

Stacey Collins and NEC4 project board member Ian Heaphy have prepared a short briefing video on the key features of X29, including how climate change requirements can incentivise carbon reduction.

Collins and Heaphy also discussed X29 in more depth at a recent NEC webinar. A recording is available to watch on YouTube.