NEC set for greater use in Peru after seven years’ success

Key Points:

• Peru adopted the NEC contract for the first time in 2017 to successfully deliver the Pan American Games sporting infrastructure to world class quality levels and in record time.
• Since then, Peru has capitalised on that success by using the NEC on other major infrastructure programmes. This has now been enshrined into the public sector procurement laws.
• This article summarises the use of NEC in Peru to date and what the future may hold.

Just seven years after they were first introduced in Peru, NEC contracts have already become widely used on major government construction programmes. New legislation and a recent government agreement to use Spanish translations of the contracts mean they are likely to become even more common for public sector projects – both in Peru and Latin America generally.

Major programmes

The contracts were first used in Peru for the Lima 2019 Pan American Games following the signing of a government-to-government (G2G) agreement in April 2017 between Peru and the UK. The UK Department for International Trade (DIT) engaged Arup, Mace and 4global as the UK delivery team to provide advice, assurance and support to the government’s special project office. The team proposed NEC as a solution to the triple challenges of meeting a severely time-constrained programme, introducing parallel design and build in a market not used to it, and creating a more collaborative delivery environment.

Between late 2017 and early 2018, a series of NEC3 Engineering and Construction Contract (ECC) Option F (management contracts) were signed for the design and build of world-class sporting infrastructure. Within 18 months, by mid-2019, all the construction works had been successfully completed for the Games (Fullalove, 2019). Building on the success of the Pan American Games programme, the Peruvian government has used NEC3 and NEC4 contracts on further major and highly complex infrastructure programmes in Peru, as in the table below.

Following the start of the ongoing US$50 million Lima 2019 legacy programme in 2020, DIT, Mace, Arup and Gleeds were appointed in July that year as programme delivery partner for the long-term Reconstruction with Changes programme for post El Niño rebuilding works (Fullalove, 2022). The programme is now worth US$5.5 billion.

Challenges and solutions

The move to collaborative contracting using NEC contracts has not been plain sailing in Peru and continues to be in the early stages of adoption. Although there is huge enthusiasm for change within the construction and infrastructure industry, contractual relationships remain adversarial and dispute adjudication boards are frequently called upon to resolve conflict.

Misconceptions surrounding NEC clauses and contractual mechanisms remain widespread. This has been in part due to modifications to the NEC contracts used on the 2019 Pan American Games and subsequent programmes, but also due to inconsistent translation and lack of availability of a body of knowledge in the Spanish language.

Nevertheless, there is a major appetite for a change to the way in which public infrastructure is procured in Peru. In 2020, a new procurement model called ‘public special investment projects’ was created in Peru under Urgent Decree No. 021-2020 and Supreme Decree 119-2020-EF. The law that enables these special investment projects requires the use of international, standard forms of contract. This regulation specifically names NEC among other standard forms of contract. The procurement model is reserved for highly complex programmes above (approximately) US$500 million of investment, and was used for the Bicentennial Schools programme.

A further big step forward was made in June 2024 with the approval of Law No. 32069, which establishes a new regulatory framework for the effective public procurement of goods, services and works. This law allows for the first time the use of standardised, international forms of engineering and construction contracts such as NEC for works and consultancy, without requiring exception. It will cover many more public construction and infrastructure projects than the 2020 law.

Finally in August 2024, as reported in the last issue of the NEC Newsletter and announced by the UK Foreign and Commonwealth Development Office (FCDO, 2024), the Peruvian government and NEC signed a memorandum of understanding for the NEC suite of contracts to be translated and adopted progressively and become the country’s preferred contract framework for infrastructure projects.

Wider usage

Since its highly successful debut on the 2019 Pan American Games, the NEC has been increasingly adopted in public sector procurement in Peru as an alternative to traditional contracts. To date, this has been limited to major infrastructure programmes carried out under G2G arrangements but the path is now open to use the NEC much more widely in public sector projects.

The NEC will publish an official translation into Spanish of NEC4 contracts, starting with the ECC and Engineering and Construction Subcontract (ECS), as well as the accompanying guidance notes and training. Other forms such as the Professional Service Contract (PSC) and short versions of all of these (ECSC, ECSS, PSSC), as well as official practice notes, will be translated in due course.

The translations will help to create consistency and a body of knowledge in Spanish and mitigate some of the current uncertainty regarding interpretation of clauses and contractual mechanisms. It will also set the foundations for adoption of NEC in the rest of Latin America.

References

• ​​​​​Lima 2019 (2019) Carlos Neuhaus presents reasons for Lima 2019’s success during Quality Week. Press release 14 October 2019
• FCDO (2024) MoU between the Peruvian Government, NEC Contracts and the UK Government. Press release 14 October 2024
• Fullalove S (2019) NEC fast-tracks Lima 2019 to record attendance levels. NEC Users’ Group Newsletter 103 (November 2019): 1_2
• Fullalove S (2022) NEC adopted for £2.8 billion of reconstruction works in Peru. NEC Users’ Group Newsletter 120 (September 2022): 1–2
• Fullalove S (2023) Peru lets £1.3 billion of NEC4 contracts for 75 new schools. NEC Newsletter 128 (November 2023): 1–2