On Monday 10 June, at the University of Salford, over 100 people gathered to hear about the Pitfalls of NEC3.
The event was organised by the Constructing Excellence Manchester Best Practice Club as part of their series on major forms of contract. What struck me was that many of the knotty problems associated with NEC3 apply to any form contract.
Here are my top 10!
Top 10 Lessons for Contract Partners
1. “Read the contract, there is no excuse not to”
NEC3 is written in plain language. It is not over-burdened with jargon and legalese. So it is worth spending some time reading the clauses from start to finish.
Tip: Grab a coffee and read the contract from start to finish.
2. “If you operate it properly, then the contract works fine”
This may be a stating the obvious. But as a lawyer, I have come across many clients who get into difficulties because they simply did not read, understand or use the contract as it is drafted. This applies to contracts with which you are really familiar (or think you are) as well as those you have never used before.
Tips: Always read your contracts. Never assume you know what it says.
3. “Comply with every word of the contract”
Martin’s opinion was that the detail in some of the NEC3 provisions is excessive. For example, it may be very difficult to produce a programme which complies with all the requirements set out in the contract. However, it is better to strive to get an agreed programme than leave it to be sorted out when compensation events arise (and the Project Manager gets to draft her version).
Tip: Especially when you are relying on the contract terms for your remedy, comply strictly and concisely to the terms of the contract. It helps to know them before you need to rely on them so follow tip 1.
4. “If it’s not in the contract, it’s not a remedy”
Martin was specifically referring to compensation events (clause 60.1) and the need for the contractor to identify which of the 19 compensation events apply. But the issue is a wider significance, especially where the contracts have an entire agreement or exclusive remedies clause.
Tip: If a specific remedy is important to you, make sure the contract reflects this. Don’t assume you can sneak it in after signing.
5. “Beware the different roles of the named representatives”
NEC3 is different to other building contracts, as it names both a Supervisor and a Project Manager, with distinct roles and authority. Nonetheless, for any contract it is important to understand precisely which person has the authority to give instructions, ask for changes to the works, direct the contractor and its subcontractors, receive notices, grant awards and review claims.
Notices sent to the wrong person may be invalid (and under NEC3, the contractor can lose its right to compensation), and directions given by the wrong person may not entitle a contractor to the more money.
Tip: If you’re not sure whether a person has authority to instruct you, ask them to confirm the contract clause they are working under.
6. “I don’t like this contract, I’m going to administer as if it was my favourite”
When a Contract Administrator does not administer the contract properly, you may as well say a big ‘hello to catastrophe’. Contracts not only need to be read (1) and operated properly (2), they need to be administered correctly. And NEC3 needs to be administered strictly as written.
Tip: If you are appointed Project Manager, write your own “How To” guide for operating it strictly in accordance with the clauses.
7. “Use the correct terminology”
NEC3 does not have extensions of time (change to the completion date); variations, claims and delay/disruption are all compensation events, and there is no reference to prime costs, provisional sums, or preliminaries. Unless you have read the contract (1), you cannot be familiar with the wording, phrasing and terminology used. But it is critically important if the Project Manager and parties are to know what you are asking for.
Tip: Always follow the wording of the contract in all your correspondence (ideally by reference to specific clauses) to make life easier.
8. “Don’t be afraid of being pedantic”
This issue relates to the need for communication under NEC3 that can be read, copied and recorded (ie not verbal) and sent to the right address. But it is relevant to other contracts too. Clear lines of communication, agreed programmes, precise roles and responsibilities, and agreed risk allocation should always be recorded before the parties start work. It pays to be pedantic in the pre-contract phase as, once work has started on site, everyone gets distracted by trying to complete the project.
Tip: Agree first, start work later.
9. “Silence is not consent”
Under NEC3 there are three occasions when acceptance can be deemed – which require the contractor to send a reminder. And there is no presumed acceptance for subcontracting. Although it might seem the pragmatic and easy course of action to just get on with procedures or work on the basis that the consent can be ‘sorted out later’, this is not best practice under any contract.
For example, if the employer is meant to consent to assignment, such consent not to be unreasonably withheld, and you think the employer is being unreasonable, you cannot just assign and hope the court will retrospectively approve that assignment: Hendry v Chartsearch.
Tip: Always get the right acceptance or approval before proceeding. Stay on top of your paperwork as then you have the records to try and establish a delay if the consent is not given quickly.
10. “Understand the contract”
If you don’t understand the contract in the relative calm of the contract negotiation phase, there is little chance you will get a moment of inspiration in the frenetic construction phase.
Tip: read the contract (1), understand the terminology (7), be pedantic (8), make sure you know what your role and that of the Project Manager (5) are and operate it successfully (4).