27-06-2022
John Elven, Senior Consultant at Arbicon, discusses the importance of acting in accordance with the requirements of NEC Contracts as a means of promoting dispute avoidance.
NEC contract 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 your NEC contract, 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 often 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.
The requirement to act as stated in the contract is very clear, yet unfortunately I have spent countless hours dealing with NEC disputes which have only arisen where one or both of the parties (or Project Manager) has not done what the contract requires it to do.
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 article 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 – like clause 16 in NEC 3).
However, what happens if the parties do not act as
stated in the contract?
A Practical Example
Let us consider a situation where the Contractor failed 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 consistently failed to include in its revised programmes when and how it was going to correct the numerous ‘notified Defects’ …
As an initial consequence of this failure, the programmes were rejected by the Project Manager on the basis that the Contractor’s plans were deemed neither practicable nor realistic (see NEC 4 clause 31.3) – i.e., the Contractor had not demonstrated how he planned to correct the Defects.
Without knowing when the Contractor planned to correct the Defects, the Project Manager did not know whether the Contractor’s planned Completion date was achievable or not.
NEC 4 clause 31.2 (8th bullet) required that the Contractor identify the resources he planned to use to carry out the works, but as it did not do so, the Project Manager was not able to determine whether the Contractor had allocated sufficient resources to correct the Defects.
As the Contractor persisted in producing non-compliant revised programmes (that were also rightly rejected by the Project Manager), this caused further problems when it came to assessing the effect of delays caused by compensation events (e.g., changes due to Project Manager instructions – 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 had an up-to-date Accepted Programme, that should not have been too much of an issue. However, as the Contractor’s programmes were consistently being rejected for non-compliance with the contract, the assessment of compensation events became increasingly difficult (as the last Accepted Programme became increasingly ‘remote’ from the date subsequent compensation events occurred).
By consistently failing to include for the correction of Defects in its programme, the Contractor placed itself at risk because it was no longer able to show the impact of a compensation event in context with a current Accepted Programme. Further, the Contractor was unlikely to be awarded sufficient additional time and to under-recover its losses associated with compensation events.
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.
For me, the 'rules' are clearly set out in an NEC contract (subject to any inconsistencies that may arise due to copious amendments), that provides the perfect starting point for me to ascertain what has gone wrong, in the event of a dispute.
I cannot emphasise strongly enough that all those involved with an NEC contract
must get it right from the outset and familiarise themselves with the contract
terms – especially the effect of any amendments – and please do not forget any
additional contract requirements that may be stated in the Works Information or
Scope! It is also essential that you manage the contract and work with mutual
trust and co-operation!
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