Understanding the NEC4 ECC Contract

A Practical Handbook

Kelvin Hughes

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351014335
• Edition: 2
• Topic: Architecture
• Subtopic: Architecture General

As usage of the NEC family of contracts continues to grow worldwide, so does the importance of understanding its clauses and nuances to everyone working in the built environment. Understanding the NEC4 ECC Contract uses plain English to lead the reader through the NEC4 Engineering and Construction Contract's key features. Chapters cover:

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• The Contractor's main responsibilities the use of early warnings

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• Contractor's design

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• Tendering

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• Quality management

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• Payment

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• Liabilities and insurance

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• Termination

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• Avoiding and resolving disputes and much more.

Common problems experienced when using the Engineering and Construction Contract are signaled to the reader throughout, and the correct way of reading each clause explained. The way the contract effects procurement processes, dispute resolution, project management, and risk management are all addressed in order to direct the user to best practice.

Written for construction professionals, by a practicing international construction contract consultant, this handbook is the most straightforward, balanced and practical guide to the NEC4 ECC available. An ideal companion for employers, contractors, project managers, supervisors, engineers, architects, quantity surveyors, subcontractors, and anyone else interested in working successfully with the NEC4 ECC.

1 Early warnings

1.1 Introduction

Early warnings are covered within the ECC by Clauses 15.1 to 15.4. They are also mentioned in Clauses 61.5 and 63.7, which we will discuss later.

Early warnings are a key component of the overall risk management process in the ECC. The process is not about liability, but instead about the Parties collaborating to identify, mitigate or remove the effect of matters which could cause difficulty.

The ECC obliges the Project Manager and the Contractor to notify each other as soon as either becomes aware of any matter which could affect the project in terms of time, cost or quality.

The requirement to notify must be done in a form which can be read, copied and recorded, and separately from other communications, in accordance with Clauses 13.1 and 13.7. The obligation is to notify as soon as either becomes aware of a matter, and this can often be difficult for parties to demonstrate one way or the other.

Whilst there is no mandatory format for an early warning, Figure 1.1 shows an example which complies with the contractual requirements.

Sometimes correspondence or records may show when the Contractor or Project Manager first became aware of something, but this can be a matter of subjective interpretation. Note that the contract says “becomes aware” not “should have become aware”.

This sometimes causes confusion, but if we take, as an example, where the Contractor is instructed by the Project Manager to use a particular methodology and the Contractor knows from experience that the methodology would probably not be sufficient to meet the requirements of the Scope, then the Contractor should give an early warning.

Under Clause 15.1 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:

Figure 1.1 Example of Early Warning Notice

• increase the total of the Prices

The price of the works, in the form of the activity schedule, the bill of quantities, or the target.

• delay Completion

The completion of the whole of the works.

• delay meeting a Key Date

The completion of an intermediate “milestone date” in accordance with Clause 11.2(11).

• impair the performance of the works in use.

This sometimes causes confusion, but if we take, as an example, where the Contractor is instructed by the Project Manager to use a particular type of pump and the Contractor knows from experience that that pump would probably not be sufficient to meet the Client’s requirements once the works are taken over, then the Contractor should give early warning.

The Contractor may also give an early warning by notifying the Project Manager of any other matter which could increase its total cost. One could query whether a matter which could increase the Contractor’s cost, but not affect the Prices, should be an early warning matter, or for that matter, whether it should be anything to do with the Project Manager, particularly if Option A or B has been selected.

However, the words are “the Contractor may give an early warning” so it is not obliged to do so. This provision is designed to encourage collaboration between the parties, irrespective of their contractual liability.

Note, also within Clause 15.1, the Contractor is not required to give an early warning for which a compensation event has previously been notified, so, as an example, if the Project Manager gives an instruction which changes the Scope, it is a compensation event, for which neither the Project Manager or the Contractor are required to give early warning.

The early warning procedure obliges people to be “proactive”, notifying and dealing with risks as soon as the parties become aware of them, rather than “reactive”, waiting to see what effect they have, then trying to deal with them when it is often too late. Encouraging the early identification of problems by both parties, puts the emphasis on joint solution finding rather than blame assignment and contractual entitlement.

It is one of the most important and valuable aspects of the NEC4 contracts and it is perhaps surprising that, whilst few other contracts refer to an early warning process, only the NEC4 contracts set out in clear detail what the parties are obliged to do, with appropriate sanctions should the parties not comply (see Clauses 11.2(8), 61.5 and 63.7).

The author has encountered situations where Clients and Project Managers appear hostile to the receipt of early warnings from Contractors. Sometimes they are viewed as the first stage in a compensation event process or similar. That may be so, but not always, and in effect could prevent a compensation event occurring or at least lessen its effect.

Statistically speaking, one would expect an equal number of early warnings to be issued by the Project Manager and the Contractor. Typically though, those issued by the Contractor frequently outnumber those issued by the Project Manager.

There are sanctions for the failure to issue early warnings and we will discuss these later. There is no “ready reckoner” for how many early warnings should be issued but an absence of them should be viewed as more worrying than a plethora of them.

1.2 Notifying early warnings

The contract requires (Clause 13.1) that all communications, for example instructions, notifications, submissions, etc. are in a form that can be read, copied and recorded, so early warnings should not be a verbal communication, such as a telephone conversation. If the first notification is a telephone conversation, or a comment in a site meeting, it should be immediately confirmed in writing to give it contractual significance.

Also, Clause 13.7 requires that notifications which the contract requires must be communicated separately from other communications, therefore early warnings must not be included within a long letter which covers a number of issues, or embodied within the minutes of a progress meeting.

There are some key words within the obligation to notify:

• “The Contractor and the Project Manager” – no-one else has the authority or obligation to give an early warning. The Project Manager is therefore notifying on behalf of itself, the Client, the Supervisor, the Client’s Designers and many possible others who it represents within the contract. The Contractor is notifying on behalf of itself, its Subcontractors, its Designers (if appropriate), and again many possible others who it represents under the contract. Early warnings should be notified by the key people named in Contract Data Part 2.

Project Managers are often criticised for seeing early warnings as something the Contractor has to do, and in fact most early warnings are actually issued by the Contractor. However, the Contractor and the Project Manager are obliged to give early warnings each to the other, so it is critical that Project Managers play their part in the process.

As an example, if the Project Manager becomes aware that it will be late in delivering some design information to the Contractor, it should issue the early warning as soon as it becomes aware that the information will not be delivered to the Contractor, not wait and subsequently blame the Contractor for not giving an early warning stating that it has not received the information!

• “As soon as” – means immediately. There are a number of clauses within the contract that deal with the situation where the Contractor did not give an early warning. Whilst the party who gives the early warning must do so as soon as it becomes aware of the potential risk, the other party should respond as soon as possible and in all cases within the period for reply in Contract Data Part 1.

• “Could” – not must, will or shall. Clearly there is an obligation to notify even if it is only felt something may affect the contract, but there is no clear evidence that it will.

The Project Manager enters early warning matters in the Early Warning Register. Early warning of a matter for which a compensation event has previously been notified is not required.

It must be emphasised that early warnings are not the first step toward a compensation event as is often believed. Early warnings feature in a completely separate section of the contract and in fact the early warning provision is intended to prevent a compensation event occurring or at least to lessen its effect. It can also be used to notify a problem which is totally the risk of the notifier. It is also worth mentioning that early warnings are a notice of a future risk, not a past one. The parties are not required, nor is it of any value, to notify a risk that has already happened.

The nature and format of early warnings can have an impact on how they are received and what reaction is prompted. Contracting parties are often keen to identify the flaws of their counterparties, but the obligation here potentially requires parties to identify and record their own failures. Common sense is therefore needed in how these are identified.

The “matters” which require an early warning to be given are essentially the three determinants of success in any project, price, time and quality. In management terms these three are inextricably linked and will always be measured by clients. Therefore, the contract recognises the importance of managing “matters” that may impact on these.

Example

Two weeks before the completion date the Contractor is informed by its Subcontractor that they have insufficient ceiling tiles to complete the works and that this could potentially cause a delay to Completion.

Should the Contractor issue an early warning to the Project Manager, bearing in mind that there has been a failure on the part of the Subcontractor, and probably...