13-06-17 notes on the nec ecc option c contract
TRANSCRIPT
Notes on the NEC ECC
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Contents0 Foreword..................................................................................................................................................5
1 General.....................................................................................................................................................5
10: Actions...............................................................................................................................................5
11: Identified and defined terms.............................................................................................................5
12 Interpretation and the law.................................................................................................................8
13 Communications.................................................................................................................................9
14 The Project Manager and the Supervisor.........................................................................................10
15 Adding to the Working Areas............................................................................................................10
16 Early warning....................................................................................................................................11
17 Ambiguities and inconsistencies.......................................................................................................11
18 Illegal and impossible requirements.................................................................................................12
19 Prevention........................................................................................................................................12
2 The Contractor’s main responsibilities...................................................................................................12
20 Providing the Works.........................................................................................................................12
21 The Contractor’s design...................................................................................................................12
22 Using the Contractor’s design..........................................................................................................13
23 Design of Equipment........................................................................................................................13
24 People...............................................................................................................................................13
25 Working with the Employer and Others..........................................................................................13
26 Subcontracting..................................................................................................................................14
27 Other responsibilities........................................................................................................................14
3 Time........................................................................................................................................................15
30 Starting, Completion and Key Dates.................................................................................................15
31 The programme................................................................................................................................15
32 Revising the programme...................................................................................................................17
33 Access to and use of the Site............................................................................................................17
34 Instructions to stop or not to start work...........................................................................................18
35 Take over..........................................................................................................................................18
36 Acceleration......................................................................................................................................18
4 Testing and Defects................................................................................................................................19
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40 Tests and inspections........................................................................................................................19
41 Testing and inspection before delivery.............................................................................................20
42 Searching for and notifying Defects..................................................................................................20
43 Correcting Defects............................................................................................................................20
44 Accepting Defects.............................................................................................................................20
45 Uncorrected Defects.........................................................................................................................20
5 Payment.................................................................................................................................................21
50 Assessing the amount due................................................................................................................21
51 Payment............................................................................................................................................22
52 Defined Cost.....................................................................................................................................22
6 Compensation events.............................................................................................................................23
60 Compensation events.......................................................................................................................23
61 Notifying compensation events........................................................................................................23
62 Quotations for compensation events...............................................................................................24
63 Assessing compensation events.......................................................................................................25
64 The Project Manager’s assessments.................................................................................................26
65 Implementing compensation events................................................................................................27
7 Title.........................................................................................................................................................27
8 Risks and insurance................................................................................................................................27
80 Employer’s risks................................................................................................................................28
81 The Contractor’s risks.......................................................................................................................28
82 Repairs..............................................................................................................................................28
83 Indemnity.........................................................................................................................................28
84 Insurance cover................................................................................................................................28
85 Insurance policies.............................................................................................................................28
86 If the Contractor does not insure......................................................................................................29
87 Insurance by the Employer...............................................................................................................29
9 Termination............................................................................................................................................29
Secondary clauses, generally called Options.............................................................................................29
W2 Dispute resolution procedure.........................................................................................................29
X1 Price adjustment for inflation...........................................................................................................30
X2 Changes in the law............................................................................................................................30
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X3 Multiple currencies...........................................................................................................................30
X4 Parent company guarantee..............................................................................................................30
X5 Sectional Completion........................................................................................................................30
X6 Bonus for early Completion..............................................................................................................30
X7 Delay damages..................................................................................................................................30
X12 Partnering.......................................................................................................................................30
X13 Performance bond..........................................................................................................................30
X14 Advanced payment to the Contractor............................................................................................31
X15 Limitation of the Contractor’s liability for his design to reasonable skill and care..........................31
X16 Retention........................................................................................................................................31
X17 Low performance damages............................................................................................................31
X18 Limitation of liability.......................................................................................................................31
X20 Key Performance Indicators............................................................................................................31
Y(UK)2 The Housing Grants, Construction and Regeneration Act 1996................................................31
Y(UK)3 The Contracts (Rights of Third Parties) Act 1999.......................................................................31
Schedule of Cost Components...............................................................................................................31
Shorter Schedule of Cost Components..................................................................................................32
Contract Data........................................................................................................................................32
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0 ForewordThese notes do not form any contractual document nor are they intended to. They are not intended for publication. They are intended to provide introductory notes for people not normally exposed to the NEC ECC but who might benefit from having a general understanding of what it all means. They are compiled from the general opinions of many people on several projects that the compiler has worked on, and no claim to authorship is made. No reliance may be placed on the legal accuracy of them and the opinions stated are personal opinions and not the opinions of the NEC or any of its parents.
1 General10: Actions: How the Parties to this Contract and others involved in its execution will behave toward one another during the duration of the Contract. The founding principle of NEC3:
10.1 “The Employer, the Contractor, the Project Manager and the Supervisor shall act as stated in this Contract and in a spirit of mutual trust and co-operation.”
Note that while the Employer’s Representative isn’t a named Party or indeed named at all in this clause, it becomes implicit that this individual will adhere to this Contract clause later (cf: 13.9, below). The phrase ‘mutual trust and cooperation’ imports not only honesty and reasonableness but may also oblige someone to do more than the contract calls for if the contract is truly to be performed co-operatively.
11: Identified and defined terms: The strict definition of terms as used in this Contract. Defined terms are capitalized and identified terms are not. Identified terms are typically terms that are defined by previously enacted legislation and, where they are, the relevant legislation or any other document you are relying on must be quoted in full for the identification to have force in a contract (as in 11.2(26) and 11.2(53), below).
Any contract will include a list of identified and defined terms, usually at the front of the document. Any term can be a defined term. The clauses 11.2(1) through 11.2(54), below, are from a contract that was executed in 2007. The defined terms listed below in bold typeface are core defined terms in the NEC3 ECC with their original references in brackets.
11.1 Tells you where the terms are identified and defined, usually in Contract Data (at the end of the contract) and tells you about italics and capitalization.
11.2(1) Accepted Programme – the cornerstone of the measurement of the Contractor’s progress and subject to a possible withholding of his Fee if he fails to submit an Accepted Programme to the Project Manager
11.2(2) Activity Schedule
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11.2(3) Affiliate, in respect of the Contractor
11.2(5) Business Day (note: day is not defined and is assumed to have its usual meaning)
11.2(6) Change in Law (see also Option X2, when used)
11.2(7) Change of Ownership
11.2(8) Completion [of the works]
11.2(9) The Completion Date (as clause 11.2(2) in the core contract document)
11.2(10) The Contract Date (when the contract came into existence) (as clause 11.2(4) in the core contract document)
11.2(11) Conflict of Interest
11.2(12) Conflicts of Interest Policy (where the Employer has one)
11.2(13) Conflict Management Arrangements (if any exist, extremely important on publicly funded projects)
11.2(14) Contract (all the documents comprising this document in its entirety)
11.2(15) A Defect (as clause 11.2(5) in the core contract document)
11.2(16) The Defects Certificate (as clause 11.2(6) in the core contract document)
11.2(17) Defined Cost (cross-refers to the Schedule of Cost Components and the Shorter Schedule of Cost Components)
11.2(18) Disallowed Cost, where used, (cross refers to Clause 85.3 and clause 88 q.v. and items stated on the Defects Certificate, above)
11.2(19) Documents (excludes Employer Data, which is defined below)
11.2(20) Employer Data
11.2(21) Employer Policies (if referred to)
11.2(22) Equipment (not free-issued by the Employer. Supplied and used by the Contractor and paid for by the Employer) (as clause 11.2(7) in the core contract document)
11.2(23) The Fee (as clause 11.2(8) in the core contract document)
11.2(24) Financial Records (that the Contractor is to keep)
11.2(26) holding company has the meaning given in Section 1159 of theCompanies Act 2006.
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11.2(27) Independent Dispute Avoidance Panel (if used)11.2(28) Independent Dispute Avoidance Procedure (if used)
11.2(29) Intellectual Property Rights
11.2(30) A Key Date (as clause 11.2(9) in the core contract document). A Key Date is referred to in a number of other clauses, such as 14.3, 31.2 and 60.1 (4). The intention behind the idea of a Key Date is clear from the guidance notes and is very welcome as concurrent Contractors need careful handling. However the Employer’s rights are quite limited should a Key Date and, with it, a condition (as defined in core clause 25) not be met.
11.2(31) Licence (for the works to be performed)
11.2(32) Legislation (should be fully defined with regard to Acts of Parliament, Royal Prerogative, European Communities Act etc)
11.2(33) Long Lead Items
11.2(35) Others (as clause 11.2(10) in the core contract document)
11.2(36) Outcomes (if used)
11.2(37) The Parties are the Employer and the Contractor. (as clause 11.2(11) in the core contract document)
11.2(38) Plant and Materials (as clause 11.2(12) in the core contract document)
11.2(39) The Price for Work Done to Date (this is a Core Clause and has implications regarding audit and cost verification, particularly if a contract goes to the courts with an allegation that money has been overpaid to the Contractor by the Employer)11.2(40) The Prices (refers to the activities on the Activity Schedule, above)
11.2(41) Pricing Date
11.2(42) Prohibited Act (should be fully defined with regard to Acts of Parliament, Royal Prerogative, European Communities Act etc)
11.2(43) Project Records (these are the deliverables from the Contractor and the Project Manager to the Employer. They are also generated for the Employer by the Supervisor, in other forms of contract referred to as the Clerk of Works)
11.2(44) To Provide the Works (as clause 11.2(13) in the core contract document)
11.2(45) Related Person (if used. Important to tie down the Contractor to liability for its Affiliates’ actions, flow-down/ back-to-back terms and conditions)
11.2(46) The Risk Register (the concept of managing the contract by means of early warnings, Risk Reduction Meetings and Compensation Events) (as clause 11.2(14) in the core contract document). The Risk Register is an innovation. It is defined, somewhat awkwardly, as ‘a register of the risks listed in the Contract Data and the risks which the Project
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Manager or the Contractor has notified as an early warning matter’. The definition goes on to say that it includes ‘a description of the risk and of the actions to be taken to avoid or reduce the risk’. However core clause 16 shows that, for early-warning matters, the process has a number of stages. After notification the matter is included in the Risk Register; it may then be discussed at a risk reduction meeting; the register is then revised to record the upshot.The definition is awkward (leaving aside the tenses) because there is no reference to the process of revision which may also result in an alteration of descriptions or actions relating to risks emanating from the Contract Data. The status of a matter which is the subject of an early-warning notice and which is then entered on the Risk Register, but for which no risk reduction meeting was called (or which was not discussed at such a meeting), is unclear. In all likelihood the notification will not extend to ‘the actions to be taken to avoid or reduce the risk’ as core clause 16.1 calls for a notice if something ‘could’ have an effect. It is also not clear why a risk reduction meeting is not part of the ordinary arrangements for meetings.
11.2(47) Scope Change
11.2(48) The Site (as clause 11.2(15) in the core contract document)
11.2(49) Site Information (referred to in the Contract Data) (as clause 11.2(16) in the core contract document)
11.2(50) Stakeholders
11.2(51) A Subcontractor (as clause 11.2(17) in the core contract document)
11.2(52) subsidiary has the meaning given in Section 1159 of the Companies Act 2006
11.2(53) The Working Areas (as clause 11.2(18) in the core contract document). Working Areas used to be the whole area identified in the Contract Data. Now it is only those parts of the Working Areas which are necessary for providing the Works. There is room for significant ambiguity/disagreement here if the access arrangements are not agreed in detail from the outset. ‘Access dates’ rather than ‘possession dates’ are referred to, to reflect the increasingly common approach of giving access but no possession.
11.2(54) Works Information (as clause 11.2(19) in the core contract document)
12 Interpretation and the law:An attempt at limiting the possibility of misunderstandings and mistakes at law so that the Parties to this Contract know what law their contract is governed by, how desired changes to the Contract may be enacted, what “laws” and other instruments are, how mistakes in wording or unlawful wording is handled and how certain failures by the Employer do not entitle the Contractor to a “get out of jail free” card.
12.1 Singular and plural words have the same meaning, as do masculine, feminine and neuter words
12.2 The law that governs this Contract. That law is one of the contract data to be supplied by the Employer in Contract Data Part 1. Pacta sunt servanda (agreements must be observed) is an established principle in international law. In some jurisdictions it is linked in private (contract) law, not only to the principle of good faith in the execution of contracts but also to the important
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concept ‘the contract is the law of the parties’. In real terms this means that a tribunal (arbitration or court) will give primacy to the contract. It will only not do so or will deviate from it, if compelled to do so by the law governing the contract. Otherwise it has to give effect to what the written contract said. This has considerable implications.If the wording of the contract is clear and uncluttered by language that is explicable only by reference to the law governing it, then there should only be recourse to that law if it is essential to do so. Thus, if the law governing the contract is not up to date (e.g. in countries that have as yet little or no modern private law), the terms of the contract will be paramount. Since NEC3 is written in plain and simple English, it ought to be capable of being used throughout the world without the possibility of its meaning varying with whatever law governs it. That may not always be true, if only because whoever is to decide what the contract means may not have the requisite background or experience or simply because some of the assumptions upon which the NEC has been constructed are implicit or not sufficiently explicit.
12.3 Changes to the Contract only in writing, signed by the Parties. Note: although the intention behind clause 12.3 is sound (changes to the contract must be in writing), I doubt if it would apply if there was in fact an agreed change which was not in writing and signed by the Parties. Some legal systems might treat clause 12.3 as ineffective or even unenforceable.
12.4 “This Contract is the entire agreement between the Parties.” Note that declaring ‘This contract is the entire agreement between the Parties’ may lead some into thinking that, for example, there can never be recourse to pre-contract statements. Its utility (in any jurisdiction) is questionable. If it were removed I doubt if it would make any difference.
12.5 References to laws (defined in this clause), enactments, legislation, public organizations and, curiously, the word “including”
12.6 Unlawful or unenforceable terms and conditions don’t render the rest of the Contract unenforceable.
12.7 Failure to enforce provisions of contract does not constitute a waiver (this has not been tested in the TCC yet)
13 Communications:What the term “communications” means, who communicates with or to whom, and, in some instances, about what. It introduces a contractual amount of time for a response to a communication, the period for reply, and differentiates between certain types of communications required in the Contract and the language they are transmitted in. Finally, it introduces the Employer's Representative and the functions of that office holder. All communications issued should be regarded as the contractual record. Hard copies of communications should only be issued when required to do so by the Works Information; and when issuing documents that cannot easily be electronically transferred and as agreed between the Project Manager and Contractor.
13.1 How an instruction, certificate, submission, proposal, record, acceptance, notification, reply and other communication which this Contract requires is communicated and in what language.
13.2 The time that a communication has effect
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13.3 The period for reply13.4 Ping-pong communications arising from non-acceptance by the Project Manager and a reason for withholding acceptance. Note that there are strictly defined reasons why Project Manager may withhold acceptance scattered throughout the Contract. Sensibly, the contract administrator would be advised to compile a list of these and make it available to the project manager (the person discharging the duty of Project Manager).
13.5 Project Manager may extend the period for reply
13.6 Who the Project Manager and the Supervisor issue their respective (and separate) certificates to
13.7 Notifications are communicated separately from other forms of communication
13.8 Withholding acceptance for a reason stated in this Contract is not a compensation event. Note, however, that withholding acceptance must be justifiable for a reason stated in thecontract for otherwise it will be treated as a compensation event. In other words, theEmployer’s Project Manager cannot unjustifiably withhold consent since that would conflictwith clause 10.1.
13.9 The Employer's Representative acts on behalf of the Employer. This individual will typically be a member of the Project Manager team, but it need not be exclusively so. This individual may be the person accepting the certificated The Price for Work Done to Date, mentioned in 11.2(39, above)
14 The Project Manager and the Supervisor:This section introduces the key interfaces of communication between the Parties, what the Project Manager and Supervisor may do for their own convenience and that the Employer retains oversight of the Project Manager and the Supervisor.
14.1 Their acceptance of a Contractor’s communication does not exempt the Contractor from its duties.
14.2 Delegation of their actions and rescission of the delegation
14.3 “The Project Manager may give an instruction to the Contractor which changes the Works Information or a Key Date.” Very important and will frequently be the basis of a priced compensation event.
14.4 The Employer may replace the Project Manager or the Supervisor. The Employer is free to replace the project manager on giving notice of the name of the replacement, although theEmployer’s freedom must not infringe core clause 10. Failure to comply with the contract mayrender the Employer liable to the Contractor. In this connection there may well be a case for an extension of option clause X18 (limitation of liability) to make clear the extent of the Employer’s liability to the Contractor and the circumstances in which there may be any limitation on liability or damages.
15 Adding to the Working AreasWorking Areas are the physically separate areas in which the Contractor performs the Works. They are bounded by fences and gated and, for the time the Contractor has control of them,
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they are the Contractor’s responsibility to maintain safely. They will normally be within the boundary of the Site, although they may be remote, or satellite areas. All visitors to the Working Areas must be given safety induction and must obey all safety instructions given by the Contractor.
15.1 The Contractor may apply for an extension to its Working Area (11.2(53)) and the Project Manager may agree to or disagree to it. If part of the Contractor’s Fee (11.2(23)) includes a Working Area overhead charge, the physical extent of the land on which this applies may serve to increase the Fee, usually by only a very small amount.
16 Early warningThe purpose of the early warning is to talk about problems early; deliver overall objectives without later dispute; enable early corrective action to be taken to remove or mitigate the effect of potential events; and to efficiently manage any contractual changes that result.Where early warning events arise, the minimum impact of the significant events should be included in the revised programme. If they are not included, the Project Manager should not accept the programme on the grounds that it does not realistically show the plan for Providing the Works. However, the Contractor should not include worst case scenarios or a plethora of uncertain potential events.
In the event that the Contractor does not give the appropriate early warning he may lose his entitlement to cost and or time adjustments under the Contract. Any subsequent entitlement that is allowed will be assessed on the assumption that the early warning had been given at the proper time and the appropriate mitigating action had been put in place.
16.1 “The Contractor and the Project Manager give an early warning by notifying the other as soon as either becomes aware of 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.” Note that the Supervisor doesn’t give anyone an early warning and that the Project Manager includes the Project Manager’s Representative.
16.2 Arising from an early warning is a risk reduction meeting, which either party may instruct the other to attend. Either party (but usually the originator) should name the date and time for the risk reduction meeting. The date and time for the meeting should be determined by the urgency of the matter. If it is necessary that the actions to avoid or reduce the risk are decided as a matter of urgency, the risk reduction meeting should be held within 48 hours.
16.3 The function and form of the risk reduction meeting and its anticipated outputs
16.4 “The Project Manager revises the Risk Register to record the decisions made at each risk reduction meeting and issues the revised Risk Register to the Contractor.” This Risk Register is separate from the risk register maintained by the project controls department risk discipline; it is a contractual document only, although its contents may well be shared with others to keep all systems fully coordinated.
17 Ambiguities and inconsistenciesThis clause defines the order of precedence the clauses of the Contract have in an attempt to limit ambiguities and inconstancies. They are, in descending order:
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17.1 ECC core Clauses, the main Option C Clauses, the secondary Option Clauses and/or the dispute resolution Clause W2, and on the other hand any other part of this Contract.
18 Illegal and impossible requirementsCross referenced with clause 12.6, this clause anticipates dealing with such circumstances, should they arise.
18.1 “The Contractor notifies the Project Manager as soon as he considers that the Works Information requires him to do anything which is illegal or impossible. If the Project Manager agrees, he gives an instruction to change the Works Information appropriately.”
19 PreventionAn unforeseeable incident that prevents the Contractor completing the works and how the Project Manager deals with it. This is in effect a force majeure clause, covering events that either stop the Contractor from completing the works or make it impossible for him to complete on time. Such events are the subject of a compensation event by virtue of clause 60.1(19).
19.1 Project Manager gives the Contractor an instruction stating how the situation is to be handled.
2 The Contractor’s main responsibilities
20 Providing the WorksAn unwritten rule in legal circles goes: if it isn’t written it isn’t said.
20.1 The Contractor Provides the Works in accordance with the Contract and the Works Information. Note that the Works appears in this clause as capitalized, as though it were a defined term, whereas in other clauses it is italicized as though it were identified in the Contract Data. The Works or the works means the same thing. It will normally be capitalized where the word Works appears alongside the work Information.
21 The Contractor’s design
21.1 “The Contractor designs the parts of the works which the Works Information states he is to design.” At this point, you may wish to introduce the concept of novated design contracts and highlight that the Contractor has ultimate responsibility for the design he novates to others. You may also stipulate any other conditions incumbent on the Contractor and his Subcontractor(s) or Consultant(s).
21.2 The Contractor submits the particulars of his design to the Project Manager for acceptance. Until the Project Manager gives acceptance the Contractor does not proceed further. As these will be part of a communication between the Parties, the period for reply and reasons for not accepting the designs will refer.
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21.3 If the designs are submitted in parts for acceptance, they must be submitted in such parts as allow the Project Manager to be able to accept the part design without having reference to the unfinished designs.
Design can be contentious and clauses may be inserted here which consider or stipulate discussion; Key Dates; design submissions meeting Key Dates and adherence to the Accepted Programme; early warnings arising from the Contractor considering that he will miss a current milestone or Key Date; impacts arising from the Employer’s comments that may affect the Prices; what the Contractor does not submit (i.e. a design that misses a Key Date); emphasis of the Contractor’s sole responsibility for the fitness for purpose of the design.
22 Using the Contractor’s design
22.1 Allows the Employer to copy and use the designs for any purpose connected with the works, unless specifically struck out in the Works Information. If this has been dealt with by a sub-clause at clause 21, this clause may not be required.
23 Design of EquipmentThis is triggered by an instruction from the Project Manager. Absent that instruction the Contractor is under no obligation to discuss his equipment designs.
23.1 Submission of equipment designs for Project Manager’s acceptance and the reasons that Project Manager may withhold acceptance.
24 People
24.1 Talks to the Contractor employing the key people identified in the Contract Data. Details of these key people are submitted for acceptance by the Project Manager and the reasons that Project Manager may withhold acceptance. The key people, therefore, are directly under the control of the Contractor and are referred to in the NEC as employees. Their actual status with regard to their legal relationship to the Contractor is irrelevant.
24.2 Replacement of key people if the Project Manager states his reason for wishing them replaced, and how quickly the Contractor reacts.
There may be additional wording or clauses inserted here stipulating qualifications and experience, objections from the Crown or Crown Agencies or authorities as to an individual’s acceptability on the Contract, the appropriateness or otherwise of an individual in the Employer’s opinion. Where this last point is made, it is advisable for the Employer to have written procedures that back his decision and that can be consulted.
25 Working with the Employer and OthersOthers may need to work with and possibly alongside the Contractor. This section discusses the relationship between the Contractor, Employer and Others so as to make it possible to complete the works.
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25.1 Cooperation with Others and sharing the Working Areas with them as required in the Works Information.
25.2 The provision of services and other things and who pays for them.
25.3 What happens, and who pays, if the Project Manager decides that the work does not meet the Condition stated for a Key Date by the date stated and, as a result, the Employer incurs additional cost. Note that clause 25.3 does not cover losses other than payment to Others (i.e. to the Employer or the Others defined in core clause 11 (10)) for additional work (in either case, curiously, also limited to ‘the same project’). This clause needs to be clarified. The guidance notes ought to explain to prospective employers the policy reasons for the limitations on the Contractor’s liability.
26 Subcontracting
26.1 “If the Contractor subcontracts work, he is responsible for Providing the Works as if he had not subcontracted. This Contract applies as if a Subcontractor’s employees and equipment were the Contractor’s.” This establishes the Contractor’s strict liability for his Subcontractors and puts him under the onus of Providing the Works, come what may. This is an essential and core clause that seeks to protect the Employer in the event of defect, default or bankruptcy of a third party over whom he has no other control.
26.2 Submission of proposed Subcontractors for acceptance and the reasons that Project Manager may withhold acceptance. Additional wording may be inserted here that withholds payment in respect of a Subcontractor who has not been accepted by the Project Manager.
26.3 Submission of the proposed conditions of each subcontract for acceptance and the reasons that Project Manager may withhold acceptance. Additional wording or substitute wording may be entered here that enforces back to back conditions being handed down to third parties and below. But be careful with this clause because there’s a little ambiguity here, in the core wording. It mentions that “a reason for not accepting them is that…” and then offers two reasons, implying that others, silent in the Contract, may well exist. It has also become fashionable to insert wording here that compels Subcontractors, of all tiers, to submit to the Employer a collateral warranty deed in favour of the Employer.
27 Other responsibilities
27.1 Contractor is also responsible for obtaining approval of his deigns from Others. Additional responsibilities, eg. obtaining Licences other than those stated in the Works Information to be supplied by the Employer, are an optional extra here.
27.2 Provision of access by the Contractor to the Project Manager (note: not to the Employer), the Supervisor and to Others.
27.3 “The Contractor obeys an instruction which is in accordance with this Contract and is given to him by the Project Manager or the Supervisor.” Note: it’s a re-statement of the obvious but it sets precedent that the chain of communication is between some of the Parties, not necessarily all of them. For example, the Employer rarely sends a communication or an instruction directly to the Contractor, although in one matter, termination of the Contract, the Employer specifically addresses the Contractor (see main clause 9, below). If the Employer does send
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communications directly to the Contractor or a Subcontractor, the Project Manager ought to dissuade that behavior as quickly as possible or the chain of command could be fatally weakened.
27.4 “The Contractor acts in accordance with the health and safety requirements stated in the Works Information.”If the project is notifiable under the Construction (Design and Management) Regulations 2007, the identity of the CDM Coordinator and principal contractor should be identified here.
Additional clauses, dealing with how the Contractor Provides the Works can be inserted here. These might include references to preventing public or private nuisance; interference with the rights of any adjoining or neighbouring landowner, tenant or occupier or any statutory undertaker; indemnification of the Employer from and against any and all expenses, liabilities, losses, claims and proceedings resulting from any such nuisance or interference; no trespass on or over any adjoining or neighboring property; and any further responsibilities the Contractor is liable for. As this is your last chance to stipulate them, give very careful consideration to what is written and to what is left out.
3 Time
30 Starting, Completion and Key Dates
30.1 When the Contractor may start work on Site and when he ought to complete
30.2 The date and certification of Completion by the Project Manager
30.3 Contractor’s responsibility to complete each element of the works by the relevant Key Dates. For each Key Date it is necessary to define what is required to be done by this date. Clause 30.3 places an obligation on the Contractor to do the relevant work so that it is completed by the Key Date. Such dates are to be specified in the Contract Data as is the work relevant to each date. The Contractor is also obliged to show on any programme which he submits for acceptance the dates when the Contractor plans to carry out the work relevant to a Key Date. The intention is that Key Dates can be used by the Project Manager (PM) to ensure that the Contractor completes a certain activity or part of the works to a precise programme so that any other contractors involved, or the Employer, can proceed with the works in accordance with the overall programme for the project. This concept is used throughout the contract.
31 The programme
NEC3’s programme for acceptance introduces a novel concept, that of the moveable baseline, agreed at regular intervals and superseding the original baseline. The planning manager becomes a de-facto key person in the project organization although perhaps not a named individual or position in the Contract. In order to keep track of where the Contract is heading, the planning manager and the cost manager need to be synchronized, as costs move along with time. Cost manager also needs to be kept informed of the effects of compensation events, as these realize risks, so the risk manager’s involvement is recommended also. While the contract
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administrator ought to be the notifying person, in practice it will be better to arrange a general project controls/contract administration meeting per Contract per period that the accepted programme covers to update everyone on what has changed. This should be separated from the project status report meeting that management regularly have, as the matters dealt with in the accepted programme need to be discussed at a fairly low level. For the avoidance of doubt, when a programme for acceptance is not accepted, the previous accepted programme remains in force. This introduces a risk of its own: if a programme for acceptance has not been accepted for a fairly long time, the current accepted programme, although valid, will become obsolete; overtaken by reality. While the courts will always look to the last accepted programme first, weight will also be given to subsequent submissions when settling disputes at law. The Project Manager’s acceptance is significant under the contract, yet under clause (14.1) it is essential to know that he is not ‘signing his life away’ every time he accepts a programme.Clause (14.1) states that acceptance of any communication does not transfer liability away from the Contractor to comply with his obligations under the Contract. The main reason for this is that if the Contractor deletes an element of work from the programme, or reduces one of the Employer’s periods stated in the Works Information, the subsequent acceptance of the programme does not by default overwrite the original Works Information. The only person who can change the Works Information on a project is the Project Manager. Having said that, acceptance under the contract is important as it is recognition that from the Project Manager’s perspective that the programme is realistic, practicable and shows the information that the contract requires.
31.1 The first programme is either that mentioned in the Contract Data or submitted within the period stated in the Contract Data.
31.2 What the programme (first and all subsequent) contains. This is a fairly detailed list that obviously begins with the starting date, access dates and Key Dates and proceeds through the order and timing of the works, when the Contractor plans to meet the conditions for the Key Dates, the provisions for float, slippage, H&S requirements and contract procedures, through provisions to the Contractor of access and acceptances etc.
31.3 “Within two weeks of the Contractor submitting a programme to him for acceptance, the Project Manager either accepts the programme or notifies the Contractor of his reasons for not accepting it.” Note: NOT within the period for reply. This is strictly time limited.
A clause referencing the Activity Schedule could be included here, if one is used.
It should be project policy that person fulfilling the role of Project Manager is accountable for ensuring that the Contractor delivers the first programme and subsequent revised programmes that are capable of being accepted and at the contractual times. Subject to the reasons for not accepting the programme listed in Clause 31.3, the Project Manager must accept the first or revised programme at the earliest practicable date and in no case, later than the date specified in the Contract. Each accepted programme must demonstrate a practical, realistic and achievable representation of the Contractor’s plan to provide the works, based upon progress current at the date of the revised programme. It is axiomatic that there will only be one programme used for each contract (the accepted programme). The use of multiple programmes is strongly deprecated.
Each contract’s Project Manager, assisted by his designated planning/schedule manager should work in close cooperation with his opposite numbers in the Contractor’s team. This will enable early and informed decisions to be made.
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Contract Data Part One – Data provided by the Employer should identify the starting date of the works on Site, the access dates for each particular part of the Site and the interval, in weeks, when the Contractor is required to submit revised programmes.
Contract Data Part Two – Data provided by the Contractor provides an option for the Contractor to include the first (accepted) programme to be included in the signed contract.
32 Revising the programme
32.1 What the Contractor shows in his subsequent submissions and
32.2 When he submits (either following a Project Manager instruction or the period mentioned in the Contract Data.
When assessing the programme implications of a compensation event, the Project Manager must ensure that the accepted programme has been progressed to accurately reflect the status at the date that the compensation event arose, prior to incorporating the impact(s) of the event.The effects of confirmed compensation events (prior to implementation), so that the programme remains realistic, need to be shown by the Contractor on each revised programme he issues (clause 32.1). Revised Key Dates or Completion Dates are not incorporated into the accepted programme until the compensation event is implemented. But why is there no reference in clause 32.1 to changes in the programme resulting from the upshot of a risk reduction meeting? If the reason is that the programme only deals with events whose consequences are capable of being assessed (i.e. only implemented compensation events) then the Contract ought to say so clearly. Whether this is massively important is probably a moot point, given that core clause 6 covers off much of the possible impacts, but there are some inconsistencies introduced between core clause 3 and core clause 6 that contract administrators should make themselves aware of.
Where the Contractor is instructed to submit a quotation for a potential instruction and / or a compensation event the Contractor assesses the potential impact of the event, on the accepted programme (cf. clause 62.2).
33 Access to and use of the SitePrior to the Contractor being granted access to the Site the Project Manager and the Contractor should consider carrying out joint condition surveys of: The Site; public highways and infrastructure to be used by the Contractor in the course of the works; adjacent properties that might be damaged as a result of the works; and underground services.
These surveys can be used as a benchmark, to determine any responsibility for rectification of damage resulting from the works and to confirm that work by previous contractors is either complete and free from Defects or incomplete. The Project Manager should ensure that adequate records, photographs, land surveys, condition schedules and the like are accepted and signed by the organisations involved and properly archived for later retrieval.
33.1 The Employer allows access at or before a stipulated date. This is important as, should the Employer fail to allow access on time the matter becomes a compensation event. It’s a small detail in the contract wording, occupying four lines, but where utility diversions or contentions over rights of way are concerned, dates can easily slip and if there is no provision for handling this, the whole project might be jeopardized.
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If the Contractor has or may have to share his Site with Others, best to mention it in a clause here.
34 Instructions to stop or not to start work
34.1 “The Project Manager may instruct the Contractor to stop or not to start any work and may later instruct him that he may re-start or start it.”
35 Take over
35.1 “The Employer need not take over the works before the Completion Date if it is stated in the Contract Data that he is not willing to do so.” This is an important consideration because the Contractor must maintain the works until the Project Manager certifies the Employer’s take over date, including keeping the works secure and in good working order.
35.2 “The Employer may use any part of the works before Completion has been certified.” At the time of doing which he takes over that portion of the works unless the Works Information says otherwise.
35.3 Note the limitation of time on the Project Manager: “…certifies the date upon which the Employer takes over any part of the works and its extent within one week of the date.” Again this is NOT necessarily the period for reply.
The Contract is silent here on the handover by one Contractor to another Contractor, where follow on works are required in the Works Information. Where an incumbent contractor has completed his obligations for a particular section or for the whole of the works and the control of that section or the whole of the works passes to a new receiving contractor then the incumbent contractor will follow the Completion and Defects processes mentioned in the Works Information and the Employer ought to take over the works concerned.
Condition surveys of the works being handed over, adjoining properties, infrastructure, existing services etc should be prepared by the receiving contractor. If the receiving contractor is granted access concurrently with the Employer taking over from the incumbent contractor, it is recommended that the condition surveys are jointly attended by both the incumbent and receiving contractors and documented agreement between the Employer, the Project Manager and the Contractors is reached. Outstanding Defects are notified to the incumbent contractor by the Supervisor. On behalf of the Employer, the receiving contractor should grant access to the former incumbent contractor for the correction of any Defects. (Clause 43.4, q.v.) Where the project is notifiable under the Construction (Design and Management ) Regulations 2007, the receiving contractor is the Principal Contractor under the CDM Regulations and assumes responsibility for safety in the Working Areas and insurances, per Contract.
36 Acceleration
When invoked, this has the potential to become a complicated matter and a subject of disagreement. It certainly provokes a flurry of activity and costs the Contractor time and money, which becomes the subject of considerable discussions. This clause is frequently amended by the legal team, particularly to try to restrict extra-over payment by the Employer and the Contractor’s right not to quote for acceleration.
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36.1 If the Project Manager instructs the Contractor to submit a quotation for acceleration to achieve completion before the Completion Date, the submission must take three things into account, viz: changes to the Prices to achieve this end, the earlier Completion Date and changed Key Dates. The Contractor’s response is due within the period for reply.
36.2 …and the Contractor’s response may be to decline to quote (but this might get struck out when the Contract’s drafted).
Although the core NEC3 contract wording is silent, it makes sense to include here a sub clause stating what the Project Manager does if he accepts the Contractor’s submission, e.g. amend the Prices, the Completion Date and the Key Dates. If clause 36.2 has been changed, removing the Contractor’s right to decline quoting then some mention needs to be made of what will happen if the Project Manager does not accept the quotation (the contract wording falls silent immediately the Contractor submits a response).
4 Testing and Defects
40 Tests and inspections
The Supervisor comes into his own in this clause, as it is he who carries out the test or arranges payment for it to be carried out (or witness it carried out by the Contractor), and notifies the Parties of Defects, for which the Contractor may be liable to pay the Employer for rectifying. Both the Contractor and the Employer provide the wherewithal for tests and inspections, so this is an all-encompassing clause. Note the line of communication between the Contractor and the Supervisor on the one hand and the Employer and the Supervisor on the other hand.
40.1 Defines what tests and inspections mean and where they are called for.
40.2 Both the Contractor and the Employer provide the wherewithal for tests and inspections.
40.3 Contractor and Supervisor notify each other in a timely manner and each notifies the other of the results. The Supervisor may watch any test done by the Contractor.
40.4 Any Defects must be corrected by the Contractor and the test repeated.
40.5 How the Supervisor is to conduct his tests and inspections and any payments due that are conditional upon the test being successful.
40.6 Contractor to pay the Employer the assessed amount of costs of any Defect found.
41 Testing and inspection before delivery
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41.1 No specified plant and materials to be brought to the Working Areas unless they have passed a relevant test or inspection.
42 Searching for and notifying Defects
42.1 One Supervisor’s function is to ensure that Defects are discovered and addressed until the defects date. He may therefore instruct the Contractor to conduct a search for and report any Defect up to that date, and give his reasons for doing so.42.2 Supervisor and Contractor each to notify the other of Defects as soon as they’re discovered
43 Correcting Defects
43.1 “The Contractor corrects a Defect whether or not the Supervisor notifies him of it.” This sub clause relies heavily on the Contractor acting in accordance with sub clause 10.1
43.2 What the Contractor does about Defects and by when.
43.3 The Supervisor’s issue of a Defects Certificate and the fact that its issue is without prejudice to the Employer’s rights in respect of anything not mentioned in it.
43.4 Project Manager arranges access to the Site for the outgoing Contractor to correct Defects (see note below sub clause 35.3, above)
44 Accepting Defects
44.1 “The Contractor and the Project Manager may each propose to the other that the Works Information should be changed so that a Defect does not have to be corrected.” Note that the Employer is not party to these proposals and that the Project Manager has the apparent authority to act entirely on his own initiative. The Supervisor has no involvement in the decision process. In this, as in certifying payments, below at 51.1, internal governance rules may apply to the two Parties.
44.2 If the proposal is accepted and if a proposed reduction in the Prices or an earlier Completion Date (or both) are agreed, Project Manager gives an instruction to change the Works Information, the Prices and the Completion Date to accept the defect.
45 Uncorrected Defects
45.1 If the Contractor is given access to correct a Defect but fails to do so within a specified time the Project Manager assesses the cost of the Defect and the Contractor pays that assessment.
45.2 If the Contractor isn’t given access, the same assessment process is run and the Contractor pays the assessed amount.
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5 Payment
50 Assessing the amount due
50.1 “The Project Manager assesses the amount due at each assessment date.” Having decided on the first assessment date, within the terms stated in the clause, the Project Manager then continues to assess the amounts due to the Contractor at further assessment dates.
50.2 The amount due (at each assessment date) is based on the Price for Work Done toDate in the non-fixed price contracts. The NEC2 definition of ‘Price for Work Done to Date’ was ‘the Actual Cost which the Contractor has paid plus the Fee’. This wording could have negative cash flow implications for contractors in that they could not claim for sub-contracted work as part of an assessment until such payments had actually been made. The NEC3 definition of Price for Work Done to Date seeks to avoid this implication by providing that it is ‘the total Defined Cost which the Project Manager forecasts will have been paid to the Contractor before the next assessment date plus the Fee’. Whilst it is not ideal for payments to be based on forecasts made by the Project Manager this wording does avoid the negative cash flow problem.The definition of the Fee has been revised so that this is calculated by applying (a) the subcontracted fee percentage to the Defined Cost of subcontracted work and (b) the direct fee percentage to the Defined Cost of other work. Hence if the subcontracted fee percentage is the same as the ‘Fee’ in the subcontract the Contractor loses margin on subcontracted work. The same applies on termination.A number of categories of costs/amounts are now expressly excluded in the non-fixed price options (C, D, E and F), including retention, payments to the Employer, correction of defects, payments to others and matters included within overheads.
50.3 This clause deals specifically with one of the very few sanctions that NEC allows the Project Manager against the Contractor: ‘If no programme is identified in the Contract Data, one quarter of the Price for Work Done to Date is retained in assessments of the amount due until the Contractor has submitted a first programme to the Project Manager for acceptance showing the information which this Contract and the Works Information requires.’ Note that it is exclusive to the submission of a first programme for acceptance; thereafter the sanction falls away, and you’re thrown back on the possible dilemma I mentioned in the note preceding clause 31.1, above.
50.4 What the Project Manager considers in assessing the amount due and the explanation he gives to the Contractor of his assessment.
50.5 ‘The Project Manager corrects any wrongly assessed amount due in a later payment certificate.’ Note: this statement relates to English common law and the concept of ‘mistake’ being rectifiable at a later date. It is clear from this clause that the applicable law of this Contract wording is based on the laws of England and Wales. What is not clear here is how the Project Manager goes about compelling the Contractor to re-measure his work for a punitive ddeduction later, given that a rolling account of the Price for the Work Done to Date is updated every payment period by the Project Manager or one of his delegated people.
A point to consider here is how to deal with payment assessments to Contractors or their Subcontractors whose base currency is different from the currency of this Contract. Reference
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might be made here to conversion of currencies and how it’s accomplished, but see also Option X3, below, the wording of which could be incorporated here to save re-drafting.
51 Payment
51.1 Among other things, ‘The Project Manager certifies a payment within one week of eachassessment date. The first payment is the amount due. Other payments are the change in the amount due since the last payment certificate.’ This is important. It implies that the Project Manager has continually refined his assessment of the amount due, giving each assessment due diligence. Notwithstanding clause 50.5, above, this introduces a possibility of challenge from the Contractor if the Employer later tries to compel the Contractor to re-measure the works on the basis that an overpayment has possibly been made.
51.2 Payment is made within the time specified in the Contract. If the Project Manager fails to issue a payment certificate which he should have issued, within the time he should have issued it, interest is assessed between the dates it should have been issued and when payment was made. The interest amount is added to the first assessment after the late payment is made. Note: be aware that on 16MAR13, the Late Payment of Commercial Debts Regulations 2013 ("Regulations") came into force. The Regulations amend the Late Payments of Commercial Debts (Interest) Act 1998 ("Act") and introduce new rules relating to payment periods, and the dates from which statutory interest runs on commercial debts. For public authorities, statutory interest will start to run on outstanding payments from 30 days after the supplier's invoice is received, the goods or services are received, or the goods or services are verified and accepted (where provided for by statute or contract), whichever is the later. For private commercial concerns, Where a payment period is specified in the contract, statutory interest will start to run from that date. However, if that agreed payment period is more than 60 days after the events listed above, the Regulations state that statutory interest will begin to run from the date 60 days after the events listed above despite the express contractual term, unless the longer payment period agreed between the parties is not "grossly unfair" to the supplier. The statutory interest rate payable under the Act, as amended, has not changed and remains at 8% above the current base rate. A supplier may also claim as compensation any "reasonable" costs of recovering the debt that exceed the fixed sum. Any attempt to exclude or limit this right is subject to the test ofreasonableness set out in the Unfair Contract Terms Act 1977.
51.3 The consequences of an amount due being corrected at a later date and the interest assessed.
51.4 ‘Interest is calculated on a daily basis at the interest rate and is compounded annually.’ But bear in mind the note at 51.2, above.
52 Defined Cost
Where target cost contracts are used under NEC, the target cost itself is deemed to be inclusive not only of the anticipated costs of providing the works together with returns for overheads and profit, but also of the Contractor’s risks as provided for in the contract. The occurrence of Contractor’s risks does not itself result in a change in the target cost. In terms of payment, however, it is quite a different proposition. The Employer pays the Contractor’s Defined Cost less Disallowed Costs plus the Fee and therefore the Employer will be paying the Defined Cost of certain Contractor’s risks. This means the Employer is effectively sharing the cost effects of
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Contractor’s risks by means of paying for most of those that occur. This at least has the effect that the target is likely to be a lesser figure than would have been the case under a lump sum contract and both parties care about the occurrence of Contractor’s risk as they both have stakes in it.
52.1 States what is included in Defined Cost and what is included in the Fee.
6 Compensation events
60 Compensation events
60.1 States what are compensation events in this Contract. Note the Project Manager’s induced compensation event at clause 60.1(9) if he withholds and acceptance for a reason not stated in the Contract. It is a model of clarity. Where additional compensation events are added, it would be wise to insert them after 60.1(19) so that they are immediately identifiable as not core to the NEC wording.
60.2 What conditions the Contractor is assumed to have taken into account in assessing a compensation event.
60.3 A reference to inconsistencies and ambiguities in the Contract and the assumption that the Contractor took these into account when assessing the compensation event.
61 Notifying compensation events
There is no link in clause 6 to the Risk Register in clause 16.1, and I find it difficult to see how any of such compensation events as arise in clause 6, particularly clause 60.1 and 61.3, would not require an early warning.
61.1 How the Contractor complies with a compensation event from an instruction given by the Project Manager or the Supervisor, unless it is because of a fault of the Contractor in the first place.
61.2 ‘The Project Manager may instruct the Contractor to submit quotations for a proposed instruction or a proposed changed decision. The Contractor does not put a proposed instruction or a proposed changed decision into effect.’
61.3 This is a slightly confusing clause, as it says that the Contractor is the Party who notifies the Project Manager of an event which has happened or he expects to happen as a compensation event, within eight weeks of becoming aware of the event. If he misses this deadline, the Contractor is not entitled to a change in the Prices, the Completion Date or a key date. Then it adds, “…unless the Project Manager should have notified the Contractor but did not”. To my mind, this introduces a clash with clause 16.1. I am further concerned that the Project Manager would not become aware of “an event which has happened”, in any case and therefore the rider, , “…unless the Project Manager should have notified the Contractor but did
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not”, seems superfluous. However, in practice, most contractors and contract administrators seem to get on with this clause, regardless of its ambiguity.
61.4 This clause states what happens when the Project Manager decides the compensation event is the fault of the Contractor, won’t happen, has no effects upon the outcomes of the basic Contract or isn’t a compensation event defined in clause 60.1. It also states what happens if the Project Manager fails to notify his decision to the Contractor within specified times.
61.5 ‘If the Project Manager decides that the Contractor did not give an early warning of the event which an experienced contractor could have given, he notifies this decision to the Contractor when he instructs him to submit quotations.’ But so what? This clause does not, of and by itself, establish a link to the process talked about in clause 16.1. And the whole matter is effectively forgotten by the Parties by the Project Manager’s instruction to the Contractor to submit quotations. There’s nothing contentious in it but it doesn’t actually add clarity or value to the wording, which I find unusual in this excellent contract family. It appears to be solely there to close a loop on a failure to observe a disaggregated risk reduction process.
61.6 When a quotation cannot be accurately defined because too much uncertainty exists, the Project Manager instructs the Contractor to state what assumptions his quotation can be based on and assesses the matter based on those assumptions which, if later found to be wrong, are instructed to be corrected. This allows the project to move onwards with documented evidence of why it’s going in the direction it’s going.
61.7 A compensation event is not notified after the defects date. Case closed.
62 Quotations for compensation events
62.1 Project Manager may instruct the Contractor to submit alternative quotations and the Contractor does so and may submit quotations for alternative ways of dealing with the problem.
62.2 What these quotations comprise and a note that the Contractor includes alterations to the Accepted Programme in his quotation.
62.3 The horse trading starts here. Contractor submits his quotation(s) within three weeks of getting the instruction; Project Manager responds within two weeks. Project Manager’s response can be varied. He can accept [one of] the quotation(s); instruct a revised quotation; notify that an instruction won’t be given; or notify that he’ll make his own assessment.
62.4 Where the Project Manager instructs a revised quotation, he explains his reasons and the Contractor submits it within three weeks of the instruction.
62.5 Taking into account the possible difficulties that both the Project Manager and Contractor may face in completing their respective actions within the stated times, this clause allows the Project Manager to extend the times allowed for those actions, in agreement with the Contractor.
62.6 What happens if the Project Manager doesn’t reply within the stated period and then doesn’t reply to a further notification within two weeks is that the Contractor treats the compensation event as accepted by the Project Manager, and then acts upon it. This ‘silence
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implies assent’ principle is rare in English common law, maybe even novel. But somehow it seems to work.
63 Assessing compensation events
Clause 63 indicates that assessments may take account of the absence of notification. An employer could reasonably expect some adjustment if, for example, the opportunity to re-programme the works or to use alternative resources had been lost or affected by the absence of an early-warning notice which should have been given (there being the requisite ‘awareness’) or by a risk reduction meeting that had not been held. There is therefore the possibility of such an argument being developed. In reality if the project has otherwise been well managed, there is unlikely to be much point in such a case. If the project has not been well managed then such a case will be no more than additional support. Nevertheless, in view of core clause 63.4 (‘The rights of the Employer and the Contractor to changes to the Prices, the Completion Date and the Key Dates are their only rights in respect of a compensation event’) it would be better if the relationship between clause 16.1 and clauses 3 and 6 were clarified. Because of the importance attaching to clause 63, I have copied each of its clauses in full and discuss clause 63.5 below clause 63.9.
63.1 ‘The changes to the Prices are assessed as the effect of the compensation event upon the actual Defined Cost of the work already done, the forecast Defined Cost of the work not yet done and the resulting Fee.The date when the Project Manager instructed or should have instructed the Contractor to submit quotations divides the work already done from the work not yet done.’
63.2 ‘If the effect of a compensation event is to reduce the total Defined Cost, the Prices are not reduced except as stated in this Contract.’
63.3 ‘A delay to the Completion Date is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme. A delay to a Key Date is assessed as the length of time that, due to the compensation event, the planned date when the Condition stated for a Key Date will be met is later than the date shown on the Accepted Programme.’
63.4 ‘The rights of the Employer and the Contractor to changes to the Prices, the Completion Date and the Key Dates are their only rights in respect of a compensation event.’
63.5 ‘If the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation event which an experienced contractor could have given, the event is assessed as if the Contractor had given early warning.’
63.6 ‘Assessment of the effect of a compensation event includes risk allowances for cost and time for matters which have a significant chance of occurring and are at the Contractor’s risk under this Contract.’
63.7 ‘Assessments are based upon the assumptions that the Contractor reacts competently and promptly to the compensation event, that any Defined Cost and time due to the event are reasonably incurred and that the Accepted Programme can be changed.’
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63.8 ‘A compensation event which is an instruction to change the Works Information in order to resolve an ambiguity or inconsistency is assessed as if the Prices, the Completion Date and the Key Dates were for the interpretation most favourable to the Party which did not provide the Works Information.’
63.9 ‘If a change to the Works Information makes the description of the Condition for a Key Date incorrect, the Project Manager corrects the description. This correction is taken into account in assessing the compensation event for the change to the Works Information.’
The text of clause 63.5 is unclear. It states: ‘If the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation event which an experienced contractor could have given, the event is assessed as if the Contractor had given early warning.’ Core clause 16.1 requires early warning of matters that could be a compensation event, but not if the event has already been notified. Clause 61.3 requires notice by the Contractor of a compensation event within eight weeks of becoming aware of the event. At first sight there appears to be an error: why should it be assumed that early warning which ought to have been given by the Contractor was not given? And given when: when it should have been given or when it was given? Is it clear that the notice in this clause is that to be given under clause 16.1? On any view the statement in the guidance notes that this provision states a sanction requires explanation, both in NEC3 and in the guidance notes that accompany it. The answer seems to be twofold. First, if it was given, albeit ‘late’ but still within the eight-week period in clause 61.3, then the lateness is taken into account. As an example, if the Contractor should have given notice of one week’s delay (applying the ‘experienced contractor’ test) but did not do so (because the Contractor was not aware—see clause 16.1) whereby the Project Manager was prevented from taking steps that might have reduced the delay to one day, the compensation event would be assessed on the basis of one day’s delay. The Contractor would be left with the cost of making up the lost time (if it still could do so) or the consequences of not having done so. That seems entirely in accordance with the spirit of core clauses 10.1 and 16.1, and also of the letter of the latter which creates an obligation only on becoming aware. (I find it difficult to conceive how the Project Manager could also have been unaware of something which an experienced contractor should not have missed.) Secondly, if the notice was not given at all, then it is assumed that normally an instruction to submit a quotation would have been given (although clause 63.1 says ‘should have been given’). Presumably in order to make an assessment the Project Manager has to construct a notional quotation, but is it done on the basis of the work done at the time when the quotation would have been required or the work to be done at that time? Clause 63.1 makes a distinction between the two. I am also unclear how the Employer can be sure of avoiding payment for costs of having to make up time that would not have been incurred had the early-warning notice been given at the ‘right’ time.Despite the fact that users seem not to have problems with its application the situation rarely arises, but I think that clause 63.5 ought to be reconsidered. Even if clause 63.5 is left unchanged, the guidance notes need amplification as to what might happen and whether there is really a sanction and not just a consequence of something which falls within the Contractor’s field of risk and responsibility. It is not stated in clause 63.5 as suggested by the guidance notes and there is room for confusion.
64 The Project Manager’s assessments
64.1 Undertaken if: no Contractor’s quotations provided; Contractor’s quotation is incorrect and no revised quotation has been requested; Contractor’s quotations failed to include time impacts
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of compensation event; the Project Manager has not accepted the Contractor’s latest programme for one of the reasons given in the contract.
64.2 The time impacts are assessed by the Project Manager if: there is no Accepted Programme; or the Contractor has failed to submit a programme or alterations to a programme for acceptance as required by the Contract.
64.3 Within the period allowed for the Contractor’s submission of his quotation, beginning on the date when the need for the Project Manager’s assessment becomes apparent.
64.4 If the Project Manager fails to assess a compensation event in the time allowed, the Contractor may notify to this effect, and state which of his quotations, if he has submitted more than one, he proposes to be accepted. If the Project Manager does not reply within 2 weeks, the Contractor’s quotation is treated as accepted.
65 Implementing compensation events
Only if a compensation event is agreed or the Project Manager has done his final assessment does it become “implemented” in the terms of the contract (clause 65.1). Sometimes this agreement will be in place well before the works are carried out, but equally there are probably more occasions that the works will have commenced and even completed before the quotation has been agreed.
65.1 ‘A compensation event is implemented when the Project Manager notifies his acceptance of the Contractor’s quotation, the Project Manager notifies the Contractor of his own assessment or a Contractor’s quotation is treated as having been accepted by the Project Manager.
65.2 The assessment of a compensation event is not revised if a forecast upon which it is based is shown by later recorded information to have been wrong.’
7 TitleThis clause deals with the transfer of title to the Employer of plant and equipment either inside or outside of the Working Areas if the Supervisor has so marked it or if it has been brought into the Working Areas by the Contractor. If the Contractor subsequently removes it with the Project Manager’s permission, title passes back to the Contractor. It includes for protective marking, removal of equipment and states that the Contractor has no title to historical or valuable objects discovered within the Site, but has title to materials from excavation as stated in the Works Information.
8 Risks and insurance
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A risk event which affects Others is dealt with under section 8 of the conditions of contract. If it affects the Employer, it will also be dealt with under this section if the event causes some loss or damage which is not provided for elsewhere in the contract. The contract allocates responsibility for such events through clauses 80.1 and 81.1. Clause 80.1 lists the events which are at the Employer’s risk, whilst clause 81.1 provides that all other such risks are carried by the Contractor. Each Party has to indemnify the other in respect of events which are at their risk – i.e. to meet the cost incurred by them as a result of the event. Each Party to an NEC contract is obliged to provide insurance cover to the requirement stated in the contract. These obligations provide cover for certain risks only, and a Party may choose to additionally insure or extend the cover for other aspects which are at his risk. Nevertheless, whatever the extent of insurance obtained and regardless of which Party pays the premiums, the allocation of risk between them remains unaltered.
80 Employer’s risks
80.1 Comprises the list of Employer’s risks and will be amended from contract to contract to list those risks specifically applicable to the project. Matters in the Risk Register (cf. clause 16) identified as Employer's risks are compensation events.
81 The Contractor’s risks
81.1 Those risks that are not carried by the Employer in the preceding clause are stated to be carried by the Contractor in this clause. The key function of the Risk Register is to apply pre-assessed and documented risk management procedures to specific identified hazards. The 'Risk Register' will initially contain those risks identified by the Employer and the Contractor in the Contract Data. Thereafter risks will be added to the Risk Register as part of the early warning process (set out in clause 16), or removed because actions have been taken to avoid the relevant risks or because they have passed.
82 Repairs
82.1 States the Contractor’s duty to replace loss of and repair damage to the works, plant and materials
83 Indemnity
The two clauses that form this part state the indemnification of the Parties by each other. Liability is reduced where “the other Party’s risk” contributed to the claims etc arising.
84 Insurance coverAn Insurance Table, included in clause 84.2, shows the insurances the Contractor provides, excepting those insurances stated as the Employer’s insurances in the Contract Data.
85 Insurance policies
Before the starting date the Contractor submits to the Project Manager for acceptance valid insurance certificates for those insurances that are his. The Contractor renews each certificate on or before its renewal date and submits those to the Project Manager also. These include waivers of insurers’ subrogation rights, fraud excepted. Each of the Parties complies with the terms and conditions of the insurance policies and the allocation of risk between the parties is as mentioned in the introductory note above.
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86 If the Contractor does not insure
Remedy is that the Employer may insure this risk and recover the cost of the insurance from the Contractor. Note: this will be particularly useful if the Contractor’s premium would be elevated to the Contractor because, say, of its size in the market or the unusual nature of the risk being insured, which the Employer may be able to obtain a better premium for.
87 Insurance by the Employer
Before the starting date (and afterwards as the Contractor instructs) the Project Manager submits to the Contractor for acceptance valid insurance certificates for those insurances that are the Employer’s. The Contractor accepts them if they comply with the Contract.
9 TerminationTermination of the Contract is strictly between the Employer and the Contractor. The Contractor may only terminate the Contract for a cause noted in a device called the Termination Table, which sets out reference to the reasons, reference to applicable procedures and reference to amounts due. The Employer isn’t thus constrained and may terminate the Contract for any reason, including any of those mentioned in the Termination Table. NEC3 provides a new Employer ground of termination (R21) in recognition of the possible effect of a force majeure, where an event occurs which stops the Contractor completing the works altogether or for more than 13 weeks beyond the programme date. Connected to this, the right to terminate for war/radioactive contamination (causing 26 weeks delay) has been removed. Under NEC2 where termination occurred in circumstances where neither party was at fault the Contractor could recover half of the Fee. This right has been removed so that the Contractor now only recovers costs.
Once he is notified of the termination the Project Manager issues both Parties a termination certificate. It is prescribed that where the Project Manager certifies his assessment of the amount due on termination then payment must be made within 3 weeks of the Project Manager‘s certificate.
The reasons that either Party may terminate the Contract are spelled out in clause 91 Reasons for termination. The procedures to be followed are listed in clause 92 and the Payments on termination in clause 93. The Project Manager has only a peripheral role in the matter and this is the rare event where the Employer and the Contractor will normally communicate directly between themselves.
Secondary clauses, generally called OptionsW2 Dispute resolution procedure(used in the United Kingdom when the Housing Grants, Construction and Regeneration Act 1996 applies). This Option states who the dispute is referred to, the Adjudicator, who may refer
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it to him (either party at any time) and what he does about it (he adjudicates it). It then describes the Adjudicator and his duties, the adjudication itself and the time scales expected for the matter to be settled. It also sets the precedent that no matter can be referred directly to the arbitral tribunal unless it has been arbitrated first by the Arbitrator, an attempt to cut down the adversarial approach of determination considerably, costs too. If a dispute escalates as far as the tribunal, settles the dispute referred to it. It has a wide ranging brief and can change the Arbitrator’s decision and any action or inaction by the Project Manager or the Supervisor. The Contract is silent on the (any) part played by the Employer. The Arbitrator cannot be called by any Party as a witness to the tribunal proceedings. This W2 dispute resolution procedure was formerly Option W1 in the 2nd revision of the NEC ECC.
X1 Price adjustment for inflationA simple equation for calculating the Price Adjustment Factor, if used in the Contract. It mentions also price adjustment for inflation that refers to compensation events.
X2 Changes in the lawCovers changes in the Contract law after the Contract Date and is a compensation event.
X3 Multiple currenciesSelf evident and mentioned in my comment below clause 50.5. But note that the Contract stipulates that sums exceeding the maximum amount stated in the Contract Data will only be due to the Contractor in the currency of this contract.
X4 Parent company guaranteeOnly applicable where a parent company owns the Contractor, in which case the PCG must be submitted within the times stated.
X5 Sectional Completion where sectional completion is acceptable, the description and completion date of each section for each section of the works to be completed.
X6 Bonus for early Completion self evident.
X7 Delay damages not quite as simple as at first appears; if the Completion Date changes, the delay damages change and if the Employer takes over a part of the works before Completion they are reduced from the date on which the part is taken over. So, where invoked, delay damages need a bit of calculation by the Project Manager and agreement by the Contractor.
X12 Partnering where partnering is entered into a Schedule of Partners is completed giving the full details of each entity. Someone called the Client is a Partner. Each Partner selects a person to represent its interests between the other partners and the collection of these people becomes the Core Group, which acts and takes decisions on behalf of the partner organizations. Note that this partnering does not create a partnership between the Partners who are not Parties in this contract. The Partners work together and they can be incentivized if clause X12.4(1) and X12.4(2) is used.
X13 Performance bond
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where invoked, it is for the amount stated in the Contract Data and must be given to the Employer within four weeks of the Contract Date (although there is no sanction in the Contract for breach of this Option).
X14 Advanced payment to the Contractor this was used occasionally on the 2012 Olympics and, where used, is repaid by the Contractor in installments described in the Contract Data. It is sometimes used to keep a smaller contractor cash-neutral or slightly cash-positive.
X15 Limitation of the Contractor’s liability for his design to reasonable skill and care caps the liability of the Contractor for Defects in the works due to his design, providing he can prove he used the aforesaid “reasonable skill and care” to ensure that his design complied with the Works Information. Additionally new X15.2 provides that where the Contractor corrects a defect for which he is not liable under the contract then this is a compensation event.
X16 Retention an option that defines how the retention will be applied by the Employer and the conditions under which it may be halved.
X17 Low performance damages If a Defect included in the Defects Certificate shows lowperformance with respect to a performance level stated in the Contract Data, the Contractor pays the amount of low performance damages stated in the Contract Data.
X18 Limitation of liability seeks to cap the liability of the Contractor to the Employer for the Employer’s indirect or consequential loss. It does this by stating the amount of cap in the Contract Data.
X20 Key Performance Indicators provides a regime whereby the performance of the Contractor can be monitored and measured against Key Performance Indicators (KPIs), with the aim of offering an incentive to the Contractor to achieve the Employer's objectives. This optionis not for use with Option X12 (Partnering), which has its own regime. The Contractor is paid a bonus if the target for the KPI is achieved but is not penalised if it is not achieved. The intention behind this is that the Contractor should be encouraged rather than coerced to meet the Employer's objectives.Y(UK)2 The Housing Grants, Construction and Regeneration Act 1996 deals with either Party who intends to withhold payment from the other and stipulates the dates for payment, notices to be served of intention to withhold payment and the compensation event that arises if the Contractor chooses to exercise his right under the Act to suspend his performance.Y(UK)3 The Contracts (Rights of Third Parties) Act 1999 ‘a person or organisation who is not one of the Parties may enforce a term of this Contract under the Contracts (Rights of Third Parties) Act 1999 only if the term and the person or organisation are stated in the Contract Data.”
Schedule of Cost Components details the following components and is only used with Options C, D or E of the NEC. People, equipment, plant and materials, charges (for the provision of water, gas and electricity to the Working Areas), manufacture and fabrication, design, insurance. In short, it is a tour through the core clauses to pick up everything to which cost accrues.
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When the defined term Contractor is used in the Schedule of Cost Components, it means the Contractor exclusively and not his Subcontractor(s).
Shorter Schedule of Cost Components the same as above, but slightly less of it.
Contract Data Part 1 and Part 2 are forms completed by the Employer and Contractor respectively detailing the major items mentioned in Clauses 3, 4, 5, 6 and 8 on the part of the Employer and the Contractor’s details, his percentages, key people, Works Information location, programme used or not used in the Contract, data relating to the Shorter Schedule of Cost Components, data for the Schedule of Cost Components, data for both schedules of cost components. A statement at the heading of Contract Data is, ‘Completion of the data in full, according to the Options chosen, it is essential to create a complete contract’. This raises the question - if the documents have not been completed in full is there a binding contract? The wording would suggest not. This would leave the question as to what agreement/arrangement had been reached between the Parties. It would be a matter of interpretation and very much dependent upon the circumstances. This is a good incentive for ensuring the contract is properly completed.
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