Suspending Works under NEC3
This article considers the act of suspending works under NEC3, and how relevant Compensation Events could impact the progress of the works.
This has been written on the principle of the parties being Employer and Contractor, however the same principles and clause numbering applies to the Contractor and Subcontractor
There is no ‘suspension’ provision per se within NEC3, rather the sequence for adjusting the completion date.
The well known principle under NEC3 is that the time for completion and the recovery of additional costs involved are grouped together through the implementation of a Compensation Event, where a contracting party is compensated for lost time and money – but what mechanisms are provided in the contract before a Compensation Event comes into existence?
Considering the ordering of the contract, the first place to look would be the issue of an Early Warning. Clause 16.1 of the Contract provides that:
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.
Further implications are listed in the contract, however these are the three most probable immediate consequences that would require a Compensation Event.
The critical words here are in bold above, an Early Warning Notice needs to be issued ‘as soon as either becomes aware’. This period has for intents and purposes now expired and we are position of allocating liability, and adjusting the completion date and additional costs.
The next provision is the Prevention Clause 19, providing:
If an event occurs which:
- stops the Contractor completing the Works or,
- stops the Contractor completing the Works by the date shown on the Accepted Programme,
- neither party could prevent and,
- an experienced contractor would have judged at the contract Date to have such a small chance of occurring that it would have been unreasonable for him to have allowed for it,
the Project Manager gives an instruction to the Contractor stating how he is to deal with it.
I would have thought now, most Contractors would know for one reason or another whether this event is going to stop the Contractor completing the works or stop the Contractor completing the works by the date shown on the Accepted Programme, and therefore an instruction would have been issued to the Contractor under Clause 19.1.
Now is the time to issue a Compensation Event Notification, if the Project Manager has issued a notice under Clause 19.1 above, then he should be notifying a Compensation Event at the same time. The contract provides at Clause 61.1 that
‘For compensation events which arise from the Project Manager or the Supervisor giving an instruction or changing an earlier decision, the Project Manager notifies the Contractor of the compensation event at the time of giving the instruction….’.
Do not be concerned if the Project Manager has given an instruction to stop, but has not completed his second task of notifying the Compensation Event, NEC 3 has catered for this in Clause 61.3 by providing that:
The Contractor notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event if:
- the Contractor believes that the event is a compensation event, and
- the Project Manager has not notified the event to the Contractor.
The full list of clauses against which a Compensation Event could be raised as a result of Coronavirus are as follows. Each circumstance will be different, therefore select the clause or clauses that are most relevant to the specific project.
As described above, either party may notify the other. Depending on which way round the notification happens, dictates when the event becomes into existence. The cut off date for the Contractor to notify an event is ‘eight weeks of becoming aware of the event’. The Project Manager should be giving his notification ‘at the time of giving his instruction or changing his earlier decision’.
If the event is notified by the Project Manager, it comes into existence immediately and the Contractor then prepares his quotations which are then subject to the acceptance and implementation provisions; in the event that the event is notified by the Contractor, then there is an additional step involved of the Project Manager acknowledging the existence of the event within one week of the Contractors notification, and instructing the Contractor to submit quotations.
At this point the issue of an Early Warning could come into play. Clause 61.5 in its entirety reads:
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.
The effect of this notification, is that if an Early Warning had been issued, and a risk reduction meeting been held, there may have been an opportunity to mitigate delays and additional costs, and that the Compensation Event would be assessed as though that opportunity to mitigate had been explored.
The Contractor must choose his wording carefully, many Compensation Events come into existence through lack of action by Project Managers and are therefore deemed to be an instruction to submit a quotation.
In this scenario the Project Manager will have lost his opportunity under Clause 61.6 whereby:
If the Project Manager decides that the effects of a compensation event are too uncertain to be forecast reasonably, he states assumptions about the event in his instruction to the Contractor to submit quotations. Assessment of the event is based on these assumptions. If any of them is later found to have been wrong, the Project Manager notifies a correction.
Now that there is a Compensation Event agreed in principle, or by default, the Contractor has three weeks to prepare a quotation, and the Project Manager has a two week period to reply to the quotation.
Quotations will include the Contractors assessment of Changes to the Prices, and any delay to the Completion Date. Any quotations need to include costs already expended together with any lost time, plus any forecast time and cost.
If the Project Manager has stated assumptions in his instruction to submit a quotation, then these must be followed and continually reviewed for accuracy. If no assumptions have been made, then the Contractor must clearly state in his quotation that the return to site, and proposed amendments to the Accepted Programme, are subject to any further UK directive and that he reserves the right to correct these assumptions subject to change.
If this changes there is then the contractual route to a further compensation event under Clause 60.1 (17): –
The Project Manager notifies a correction to an assumption which he has stated about a compensation event.
Caution needs to be paid to Clause 65.2 which prescribes that:
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.
The best approach here would be, that as soon as the Contractor is aware that the potential return to site date is in jeopardy, he should be issuing an Early Warning to discuss how to address.
Quotations and acceptance will follow the normal NEC 3 procedure.