NEC4: 100 Questions and Answers

Kelvin Hughes

• Publisher: Routledge
• Year: 2019
• ISBN:
  9780429774218
• Edition: 1
• Topic: Architecture
• Subtopic: Professional Practice in Architecture

This book details some of the most important and interesting questions raised about the NEC4 family of contracts and provides clear, comprehensive answers to those questions.

Written by an NEC expert with over 20 years' experience using, advising and training others, the book has several distinctive features:

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• It covers the whole NEC4 family

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• It is written by a very experienced NEC author who explains sometimes complex issues in a simple and accessible style

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• The questions and answers range from beginner level up to a masterclass level

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• The questions are real life questions asked by actual NEC practitioners on real projects.

The book includes questions and answers relating to tendering, early warnings, programme issues, quality management, payment provisions, compensation events, liabilities, insurances, adjudication, termination and much more. It is essential reading for anyone working with the NEC4 family of contracts, whether professionals or students in construction, architecture, project management and engineering.

Chapter 1

Early warnings and Risk Registers

Question 1.1 Is there a standard format within the NEC4 contracts for an early warning notice? Is there any remedy if the Project Manager or the Contractor fails to give an early warning?

First, in direct response to the question, there is no standard format within the NEC4 contracts for early warnings.

Let us consider the NEC4 Engineering and Construction Contract, where early warnings are covered within the ECC by Clauses 15.1 to 15.4.

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 that 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 is to notify, and this must be done in a form that 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 (see Figure 1.1).

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”.

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 that could:

• 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.

Figure 1.1 Suggested template for early warning notice

• 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 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 Project Manager or the Contractor may also give an early warning by notifying of any other matter which could increase the Contractor’s total cost. One could query whether a matter that 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 that changes the Scope, it is a compensation event, for which neither the Project Manager nor the Contractor are required to give early warning.

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, the ones issued by the Contractor frequently outnumber the ones issued by the Project Manager.

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 that the contract requires must be communicated separately from other communications; therefore, early warnings must not be included within a long letter that 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. If the Project Manager gives an instruction for which a compensation event has already been notified, there is no requirement for either party to give an early warning.

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 that 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.

Question 1.2 What is an Early Warning Register, and what is its purpose within the NEC4 Engineering and Construction Contract?

The NEC4 contracts provide for the use of a risk register, now referring to it as an “Early Warning Register”, to distinguish it from a Project Risk Register which would take into account other risks such as health, and safety, environment, etc.

The Contract Data contains matching sections in Parts 1 and 2 for the Parties to add matters that will be included in the Early Warning Register. That is to say that both Parties have the ability to list risks that they wish to form part of the risk management processes in the contract. These do not change the risk allocation between the Parties. These entries are to assist the risk management processes of the Parties by listing those risks that collaborative behaviour will help with.

It is critical that the Parties fully understand that the purpose of an Early Warning Register is to list all the identified risks and the results of their analysis and evaluation. It can then be used to track, review and monitor risks as they arise to enable the successful completion of the project. The Early Warning Register does not allocate risk, that is done by the contract.

The Early Warning Register is a simple document, but a vital one in the process of risk management. Its role and contents are frequently misunderstood by Parties, particularly where people confuse its use with risk registers elsewhere, such as those that are components of company management systems. Its purpose is to assist the Parties and the Project Manager with managing risk in the project delivery and not to allocate responsibility or blame.

It is helpful to start with its definition from clause 11.2(8):

The Early Warning Register is a register of matters which are

• listed in the Contract Data for inclusion and

• notified by the Project Manager or the Contractor as early warning matters.

It includes a description of the matter and the way in which the effects of the matter are to be avoided or reduced.

The Early Warning Register contains information about these risks:

• Those listed in the Contract Data

◦ by the Client in Contract Data Part 1

◦ by the...