NEC3 A Practical Guide to Compensation Events. Chris Holden. LLB FRICS FBEng MCIArb.

Transcription

1 NEC3 A Practical Guide to Compensation Events Chris Holden LLB FRICS FBEng MCIArb

2 Introduction The intention of this presentation is to provide a practical approach to dealing with compensation events in terms of not only what the contractual provisions require the parties to do, but also how the parties should proceed.

3 Introduction The philosophy of the NEC is that the Contractor should not lose out, nor indeed should he benefit from a windfall, as a result of an event which the contract puts at the Employer s risk, ie: compensation events.

4 Introduction The approach adopted by the NEC in relation to a contractor s entitlement to relief, in terms of both additional time and monetary relief is therefore quite different from that of earlier standard forms such as the ICE, GC Works 1, JCT and FIDIC forms.

5 Introduction The NEC does not contemplate contractor s claims, in the traditional (often advanced retrospectively) sense, for extensions of time, additional cost, or loss and/or expense. Under the NEC such matters are dealt with by both parties proactively following the procedures set forth in the contract for the notification and assessment of compensation events.

6 Introduction Clause 10.1 provides: 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.

7 Introduction Clause 63.4 provides: 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. Breaches of contract by the Employer are compensation events (60.1). The intended effect of Clause 63.4 is to exclude the parties common law rights.

8 Introduction Accordingly, since the Contractor s only rights lie through the Contract, in order to maintain his rights and obtain the relief to which he may be entitled, it is essential that the Contractor complies with the provisions of the Contract in relation to the notification of events which may constitute compensation events. No timely notice, no financial relief and no extension of time for completion, culpable delay and exposure to delay damages.

9 Communications Clause 13.1 provides inter alia: Each instruction, certificate, submission, proposal, record, acceptance, notification, reply and other communication which this contract requires is communicated in a form which can be read, copied and recorded. i.e. in writing Clause 13.7 provides: A notification which this contract requires is communicated separately from other communications. Notices of compensation events must be given in writing and must be separate from other communications.

10 Communications Minutes in meetings of meetings will not constitute valid notification, nor will it be sufficient to include a notification within a communication addressing other, unrelated matters. would be compliant but it is recommended that whilst may be used to forward notifications, the notification should not be in the form of itself. In the interest of uniformity, use of standard forms (see example 1) is recommended. This will lead to greater clarity and certainty in complying with the provisions of the contract.

11 Early Warnings Clause 16.1 provides inter alia: The Contractor and the Project Manager give and 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 Impair the performance of the works in use The Contractor may give an early warning by notifying the Project Manager of any other matter which could increase his total cost. The obligation is not confined to notifying matters which are/or may be compensation events. Use of a two-way standard form is recommended (see example 2).

12 Early Warnings Clause 61.5 provides: 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. Clause 63.5 provides: If the Project Manager has notified the Contractor of his decision that the Contractor did not give an early warning of a compensation which an experience contractor could have given, the event is assessed as if the Contractor had given early warning.

13 Early Warnings Clause 63.5 is often misinterpreted as having the effect of letting the Contractor off the hook for failing to give early warning. In fact, the intention of the provision is to ensure that the Contractor does not benefit from his own breach in failing to give early warning, in circumstances where early warning would have had a mitigating affect on the effects of the compensation event.

14 Notifying Compensation Events Early warning notifications do not constitute notifications of compensation events. The two require separate notifications. Both the Project Manager and the Contractor are under an obligation to notify. (61.1 and 61.3 respectively) The use of two-way standard forms is recommended (see example 3).

15 Notifying Compensation Events Clause 61.1 provides inter alia: 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 given the instruction or changing the earlier decision. He also in instructs the Contractor to submit quotations,. Note: the requirement to instruct the submission of quotations is mandatory (as to which see 10.1).

16 Notifying Compensation Events Clause 61.3 provides inter alia: 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.. Note: Clause 60.1 sets forth a list of events which are compensation events (60.1(1) to (19)). As far as Main Options A, C, E and F are concerned, the list is exhaustive. However, Main Options B and D carry two additional compensation events relating to changes in quantities stated in the Bill of Quantities (as to which see Main Option Clauses 60.4 and 60.5).

17 Notifying Compensation Events Clause 61.3 further provides:.if the Contractor does not notify a compensation event within eight weeks of becoming aware of the event, he is not entitled to a change in the Prices, the Completion Date or a Key Date unless the Project Manager should have notified the event to the Contractor but did not. Note: This provision is a condition precedent and must be complied with. The only proviso being in circumstances of the Project Manager s failure.

18 Notifying Compensation Events Failure to give Notice Conditions Precedent Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No.2) [2007] EWHC 447 (TCC) appears to support the Opinion of the Inner House of the Court of Session in City Inns v Shepherd failure to comply with a condition precedent deprived the Contractor of the right to claim and extension of time. there is no reason to suggest why the same principle would not deprive the Contractor of the right to claim any other form of relief

19 Notifying Compensation Events Failure to give Notice Conditions Precedent Steria Limited v Sigma Wireless Communications Limited [2008] BLR 79 By virtue of Condition 6, if circumstances arose for which Sigma was responsible, Steria was entitled to extensions of time provided Steria gave written notice within a reasonable period. The wording of Condition 6 was clear and there was no need for the inclusion of any expressed statement that unless written notice had been given within a reasonable time, Steria would not be entitled to an extension of time. Thus the Judge was saying that there does not need to be an express warning as to the consequences of non-compliance for the provision to operate as a condition precedent.

20 If you would like a full copy of this presentation for free please dawn@kerrigans.net and include subject title Notifying Compensation Events Failure to give Notice Conditions Precedent In the Scottish case of Education 4 Ayrshire Ltd v South Ayrshire Council [2009] CSOH 146 The Court dismissed the Contractor s claim for both extension of time and monetary compensation on account of the Contractor s failure to comply with the exacting requirements of a notice provision. This was despite the fact that the Contractor s notice was given within the time period stated in the Contract.