NEC Contracts – Getting it Right from the Start

By John Elven

NEC Contracts and Dispute Avoidance

This blog considers the importance of acting in accordance with the requirements of NEC contracts as a means of promoting dispute avoidance.

NEC disputes often arise where there has been a failure to follow the requirements of the contract. In view of this, it is essential to read and understand NEC, and then do exactly what it says. By doing this, those involved with NEC projects are in a far better position to get things right from the start and to prevent disputes from arising in the first place.

If you start reading NEC from the beginning, the first core clause that you will read is clause 10.1, which in NEC 3 makes mention of the oft quoted NEC requirement to ‘act in a spirit of mutual trust and co-operation’. Whilst this is important if one is to understand the intention of the NEC contract, NEC 4 has redrafted clause 10 so that it now has two sub-clauses which place greater emphasis on doing what the contract requires, rather than how the parties are expected to behave.

In NEC 4, clause 10.1 simply states:

“The Parties, the Project Manager and the Supervisor shall act as stated in the contract.”

With this simple statement, NEC 4 leaves no doubt as to the importance of doing what the contract requires. The inclusion of the word ‘shall’ means that compliance with this contract’s requirements is not an option, it is mandatory.

NEC 4 continues with clause 10.2, which states:

“The Parties, the Project Manager and the Supervisor act in a spirit of mutual trust and co-operation.”

Notably, clause 10.2 excludes the word ‘shall’, which seems to emphasise the NEC’s focus on the requirement of the preceding clause 10.1.

The NEC Guidance Notes indicate that the requirement to act in a ‘spirit of mutual trust and co-operation’ was added on the recommendation of the Latham Report, but does not elaborate on what these words mean. However, as this blog is promoting dispute avoidance, I thought it fitting to quote para 9.3 of Sir Michael Latham’s report where he wrote (in Chapter 9 Dispute Resolution):

“The best solution is to avoid disputes … If a contract document is adopted which places the emphasis on teamwork and partnership to solve problems, that is another major step …”

Certainly, prevention is better than cure (as the saying goes) and the emphasis on working together to solve problems is in keeping with the NEC requirement that the parties firstly ‘act as stated in the contract’ and then work together to solve any problems.

An example of this is the NEC 4 provision of early warning meetings whereby the Contractor and Project Manager can discuss solutions to ‘any matter which could increase the total of the Prices, delay Completion, delay meeting a Key date or impair the performance of the works in use.’ Hence, NEC 4 makes provision for the resolution of potential problems before they arise (clause 15 refers – see clause 16 in NEC 3).

However, what happens if the parties do not act as stated in the contract?

Let us consider a situation where the Contractor fails to act in accordance with NEC 4 clause 32.1, where it states (in part):

“The Contractor shows on each revised programme… [how it] plans to deal with any delays and to correct notified Defects…”

In this case, the Contractor has failed to include in a revised programme when and how it is going correct the ‘notified Defects’.

As an initial consequence of this failure, that programme could be rejected by the Project Manager on the basis that the Contractor’s plans are deemed neither practicable nor realistic (see NEC 4 clause 31.3) – i.e., the Contractor has not demonstrated how he plans to correct the Defects.

Without knowing when the Contractor plans to correct the Defects, the Project Manager may not be able to know whether the Contractor’s planned Completion date is achievable or not.

As NEC 4 clause 31.2 (8th bullet) requires that the Contractor identify the resources he plans to use to carry out the works, the Project Manager may not be able to determine whether the Contractor has allocated sufficient resources to correct these defects.

If the Contractor persists in producing non-compliant revised programmes (that are also rejected by the Project Manager), this can later cause a problem when it comes to assessing the effect of delays caused by compensation events (e.g., changes due to Project Manager instructions, delayed access, an instruction to stop work or exceptionally bad weather – see NEC 4 clause 60.1).

NEC 4 clause 62.2 requires that, ‘If the programme for remaining work is altered by the compensation event, the Contractor includes alterations to the Accepted Programme in the quotation.’ If the Contractor has an up-to-date Accepted Programme, that should not be too much of an issue.

However, many disputes have arisen where the Contractor has attempted to assess the impact of a compensation event using an Accepted Programme that is no longer current and does not reflect the current progress on Site. By consistently failing to include for the correction of Defects in its programme, the Contractor has effectively placed itself at risk because it is no longer able to show the impact of a compensation event in context with a current Accepted Programme; and is therefore likely to be awarded insufficient additional time, and to under-recover its losses.

How easily this situation could have been avoided if the Contractor had acted ‘as stated in the contract’ and provided compliant revised programmes in the first place.

With that thought in mind, I hope that you have enjoyed considering the relevance of NEC 4 clauses 10.1 & 2 and that you have gained a greater appreciation of the importance of doing everything that NEC contracts require.

If you would like further information on anything included in this blog, or would appreciate some assistance with a current dispute, please feel free to send us a message, or to give us a call. We would be pleased to hear from you.

#Construction #DisputeResolution #NEC #NECContracts