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THE NEC STANDARD FORM OF CONTRACT AND ITS APPLICATION TO PROJECT MANAGERS

In this, the second in a series of articles on the NEC standard form of contract, we again look at a situation where the NEC standard form attempts to be user-friendly but:

  • uses non-explicit language to describe obligations placed upon the Project Manager
  • does not provide a solution in the case of default by the Project Manager

Unlike some other forms of contract, the intention with NEC is to make the programme not only a contract document but also a working tool, to be used by the Parties to evaluate progress and as the basis for the calculation of any extension of time granted.

Under NEC, Clause 31 sets out in detail the requirements to be complied with by the Contractor for an Accepted Programme.  These provide a list of inclusions to decide whether a programme can be accepted by the Project Manager and should provide clarity as they are contractually agreed.

Across the various Options, Clause 31 is split into three sub-clauses, for Options administered using a Bill of Quantities (see a to c) and four sub-clauses (see a to d) for Options administered using an Activity Schedule.  These sub-clauses deal with:

  • 31.1 – The first Programme
  • 31.2 – Detailed requirements for inclusion within the Programme
  • 31.3 – Acceptance by the Project Manager and grounds for non-acceptance
  • 31.4 – Requirements for a link between the Activity Schedule and the Programme

Clause 32 then deals with items additional to Clause 31.2 required for revised programmes.

The NEC makes securing an Accepted Programme a priority, but whilst placing obligations upon both the Contractor and the Project Manager to do this, the Contract effectively only provides real consequences for default in respect of the Contractor.

The First Programme

Clause 31.1 stipulates the requirements for a first Accepted Programme.  Clause 50 deals with payments due to the Contractor.  Under Clause 50.2:

“The amount due is:

  1. the Price for Work Done to Date
  2. plus other amounts to be paid to the Contractor
  3. less amounts to be paid by or retained from the Contractor

The last bullet point carrying most relevance in regard to an Accepted Programme.

Further Clause 50.3 states:

“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 requires.”

This demonstrates a clear and potentially substantial financial consequence for the Contractor in not submitting a timely first programme.

It should be noted that obligations are placed upon the Project Manager to accept this first programme. However, the provisions could be abused by the Project Manager, thereby unfairly punishing the Contractor.

The Project Manager‘s obligations are contained under 31.3, which states:

“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. A reason for not accepting a programme is that:

  1. the Contractor’s plans which it shows are not practicable
  2. it does not show the information which this contract requires,
  3. it does not represent the Contractor’s plans realistically or
  4. it does not comply with the Works Information.”

But what if the Project Manager does not accept the Programme, stating one of the above reasons, and the Contractor does not agree?  The reasons are, after all, fairly unspecific in nature. And what if the Project Manager is silent or provides no grounds for not accepting the Programme?

The guidance notes only provide consequences for the Project Manager in regard to the first programme submission, classifying this situation as “a late reply” and stating that in this event a compensation event is triggered under Clause 60.1(6): “The Project Manager or Supervisor does not reply to a communication from the Contractor within the period required by this contract”.  It could be argued additionally that a compensation event is triggered under Clause 60.1(9) in the event the Contractor has complied in full with the requirements of Clause 31 in regard to content.  This clause states: “The Project Manager withholds an acceptance (other than an acceptance of a quotation for acceleration or for not correcting a defect) for a reason not stated in this contract”.

The problem is that subsequently the Contractor may notify a compensation event under Clause 61.3, but then potentially a “difference of opinion” arises, prompting a “game of ping-pong” as to whether there is in fact a compensation event or that the Contractor has not complied with the requirements stated within Clause 31.3.  The consequence to the Contractor will be the 25% deduction applied to payments and so any default on the part of the Project Manager has real consequences.  This being the case, many Project Managers will accept the first programme to avoid suggestion that they are in breach of Clause 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”  and any suggestion that the Project Manager is not “administering the contract impartially and in the interests of both the Employer and the Contractor equally”, which would potentially amount to bias in favour of the Employer.

Revised Programme Submissions

Revised Programme submissions under Clause 32 are handled slightly differently in that the guidance notes do not this time account for or suggest a compensation event being triggered in the event the Project Manager does not reply within the period for submission.  The Contractor effectively must “think for himself” and apply the contract provisions as in the case of default by the Project Manager in regard to acceptance of the first programme. 

The big difference this time is that even if there is a compensation event triggered through Clauses 60.1(6) or 60.1(9), there may be little or no initial financial or temporal consequence to the Contractor through the programme not being accepted.  This being the case there is a lot of effort on the part of the Contractor to try to secure acceptance and little consequence for the Project Manager in not providing acceptance.  The main route open to the Contractor is, in this case, to ensure that good records are kept and notifications are issued to demonstrate the Project Manager’s default.  This would then potentially lead to an argument that the Project Manager is not complying with Clause 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”) and in addition that the Project Manager is not “administering the contract impartially and in the interests of both the Employer and the Contractor equally“.  Effectively, as above, the Project Manager is showing bias in favour of the Employer.

If the Contractor is sure that the requirements of Clause 31 have been complied with in full and the Project Manager still does not accept a revised programme, then it could cast a shadow over the Project Manager in the event the Contractor then took a dispute to adjudication in regard to the acceptance of the programme.

About the Author

John Blackshaw is a dual qualified specialist construction law lawyer who worked as a commercial manager, project/programme manager and contracts manager before qualifying as a solicitor. John has worked internationally for in excess of 25 years in North America, South America, and in Western, Central and Eastern Europe on a wide range of projects across the energy, nuclear, roads, rail, marine, infrastructure, automotive, industrial, residential and commercial sectors, both with Employers, and with Tier 1/Tier 2 Contractors as well as in-house.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy, infrastructure and natural resources  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and other technical experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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