Roseanne Serrelli and Gonzalo Puertas discuss the new X29 Climate Change clause.
Following the publication of a consultative draft in April 2022 (as previously reported in our blog), the New Engineering Contract (NEC) published on 26 July 2022 the secondary Option X29 (Climate Change) clause that can be incorporated across the suite of NEC4 main contract and main subcontract forms ranging from the Design and Build Contract to the Professional Services Contract. NEC have also published corresponding Guidance Notes for each of the X29 secondary options setting out in detail how the provisions can be utilised.
Purpose
According to NEC, the X29 clause will be used to “tangibly demonstrate carbon reduction initiatives on future builds across the construction sector”. The new clause aims to reduce the impact of emissions arising through the lifecycle of an asset i.e., the emissions created in the construction works themselves, in the production of materials and in the operation and maintenance (and, eventually, demolition) of the resulting asset. Instead of traditionally adhering to one of the party’s climate change policies as appended in the contract documents, the X29 clause has been developed to address the issue in the project scope of works or services and to engage clients and all key members of the supply chain.
How it works
Depending on the NEC4 contract form, the key elements introduced by the X29 clause are:
- Climate Change Requirements to be complied with by the contractor as specified in the project scope e.g., 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. This means that if the contractor fails to comply and the failure relates to the contract works, it will be a defect and must be remedied. It is worth noting that, as part of the project scope, Climate Change Requirements can be changed unilaterally by the project manager;
- a Climate Change Plan i.e., the contractor’s strategy setting out the stakeholders, roles, timescales, key milestones, tools, and tasks for achieving the Climate Change Requirements. The plan is a statement of intent of how the contractor proposes to achieve the Climate Change Requirements, thus it is not subject to direct contractual sanctions if the contractor fails to comply with it.
- a non-mandatory Performance Table setting out performance targets and incentives to encourage the contractor to achieve stated performance targets. Incentives may be financial (positive or negative), or even not financial and instead be used only to measure and record the performance achieved. The contractor is required to report its performance against the Performance Table targets at regular intervals. As the table is not part of the project scope, it cannot be changed unilaterally by the project manager and failure to achieve these targets will not result in a defect that has to be corrected.
- contractor’s proposals of changes to the project scope of works or services to reduce the impact of emissions on climate change during 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.
Heads up
The X29 clause follows the NEC approach to a collaborative contractual relationship and so requires the contractor to collaborate with other Climate Change Partners identified in the Climate Change Requirements, and to give early warnings for events which may impact the achievement of the Climate Change Requirements.
The Guidance Notes emphasise that careful consideration must 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. If the Climate Change Requirements are unduly onerous this may lead to bidders refusing to bid for the work or including substantial risk allowances within their bids.
Also, the Guidance Notes indicate that the X29 clause is in some ways a combination of secondary Options X17 (Low-performance damages) and X20 (Key Performance Indicators), and it is recommended that it is not used with these options.
Sharpe Pritchard has extensive experience preparing all forms of construction contracts and ancillary agreements and our experts are keeping a close eye on changes in legislation and regulations to assist parties through the intricacies of construction projects, including the achievement of green goals.
Roseanne Serrelli is a Partner, Head of Strategic Projects and Innovation and Gonzalo Puertas is an Associate (Peru Qualified) at Sharpe Pritchard LLP.
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