Earlier this year, we considered the use of sustainability provisions in construction contracts as a way to reduce the industry’s carbon footprint (see our blog post here). In this follow up post, we take a look at the climate change clause (Option X29) recently published for use with the NEC contracts (a suite of standard form construction contracts and consultant appointments which focus on good project management and collaboration).

The clause was published in final form on 26 July, following the publication of a consultative draft in April. There are various versions of the clause available, depending on which NEC contract it is to be used with – eg the Engineering and Construction Contract, Professional Services Contract, Alliance Contract etc.

In a nutshell

The key elements introduced by the clause are:

  • Climate Change Requirements: The contractor is required to comply with the “Climate Change Requirements”, which will be requirements specified in the scope of works. These could include things such as levels of recycling, the use of renewable power on-site, the use of electric vehicles, reducing waste generation, designing out waste, and reducing carbon emissions through design. If the contractor fails to comply, and the failure relates to the works (ie the asset being constructed), it will be a defect and must be remedied. It follows that the content of these requirements must be carefully considered – being measurable and clear while also striking the balance between giving teeth to these climate related requirements and being so onerous as to be unachievable.
  • Climate Change Plan: This sets out the contractor’s strategy for achieving the Climate Change Requirements, and should identify matters such as project stakeholders, timescales, tools to achieve the requirements and incremental tasks. If a plan is not submitted by the contractor as part of its bid, then it must be submitted within a fixed period (stated in the contract data) after the contract is entered into. The plan should be revised during the course of the project as and when required.
  • Performance targets: In addition to the Climate Change Requirements, a regime for reporting on compliance with specified performance targets is included in clause X29. The client can set financial incentives (in the form of a carrot and/or stick) to encourage the contractor to achieve these performance targets. The targets and rewards are set out in a Performance Table.
  • Contractor’s proposals: The contractor can propose changes to the project scope (including the Climate Change Requirements) to reduce the impact on climate change for the lifecycle of the asset. If the change results in the contractor bettering the targets set out in the Performance Table, then it will be rewarded as provided for in the Performance Table.

Our thoughts

The construction industry accounts for a significant proportion of carbon emissions (an estimated 37% of global energy-related CO2 emissions in 2020). NEC’s clause X29 should serve as a useful tool to support decarbonisation of the industry by encouraging parties to think right at the outset about the steps that they can take to reduce carbon emissions throughout the project lifecycle.

The clause (and accompanying guidance) also recognises that emissions arise in various ways: including in the construction operations themselves, the emissions created in producing materials for construction projects (embodied carbon) and the emissions created by the operation and maintenance (and, eventually, demolition) of the resulting asset.

However, it is important to note that the clause is not a solution in itself and cannot be inserted into the contract without further thought. Rather, it is a framework that can be used to give contractual effect to the steps that the parties are going to take to fight climate change. What those steps are is an issue that needs to be considered carefully. They should be measurable and achievable, while also being more than simply ticking the box. While they may initially be proposed by the client, in line with the general ethos of the NEC contracts clause X29 supports a collaborative effort by both parties (and potentially those down the supply chain), to put forward suggestions that build on measures employed on previous projects to reduce the climate impact through the lifecycle of the asset. Hopefully, this will, in turn, enable the industry to continue to shift the benchmark.

This is part of a series of blog posts exploring the potential impacts of energy transition and climate change on global projects. Click here to see other posts in the series.