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HomeArticlesPeter BarnesCase Study: What decision would you reach in this adjudication under NEC 3

Case Study: What decision would you reach in this adjudication under NEC 3

Peter BarnesBy Peter Barnes

This week, guest contributor Peter Barnes considers a case of adjudication under the NEC 3 document and wonders what decision you might reach faced with a wonky floor and whether it is a Compensation Event.

Introduction

The NEC 3 is often referred to as Marmite; people either love it or hate it. Adjudicators, being the impartial people that they are, have no pre-conceived view on a form of contract, their job is simply to apply the terms of the contract which is applicable to the dispute that has been referred to them.

In the case of the NEC 3, this could cause some difficulty to an Adjudicator who is inexperienced in the use of NEC 3.

The following situation gives an example that an Adjudicator may be faced with.

Problem

Core Clause 61 of the Engineering and Construction Contract (NEC 3) deals with ‘Notifying Compensation Events’.

Sub-Clause 61.3 says

“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.

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.”

On a particular project, the Employer does not allow access to the Contractor to a particular floor in line with the Accepted Programme to allow the Contractor to carry out the works to that floor. At the time when the access is denied the Accepted Programme showed a ten week float on the work to that floor, and therefore the delayed access was not expected to delay the Completion Date (there were no Key Dates to consider) and the Contractor therefore did not believe that the event (i.e. denied access) would become a Compensation Event.

The Contractor continually asked when access to the floor in question would be permitted, and the stock answer from the Employer was “in two or three day’s time”.

This matter dragged on for several weeks, and eventually (after the 10 week float period had been used up) the Contractor realised that the denied access would delay the Completion Date and after reviewing and considering the latest Accepted Programme gave notice 10 weeks and 2 days after the access had been denied that the event was (in its opinion) a Compensation Event. The Guidance Notes of the contract suggests that the Contractor is required to give notification of this type of event as being a Compensation Event.

When the Contractor gave this notification, the Project Manager declared that it was ‘out of time’ as it was after the 8 week period for the notification of a Compensation Event as required by core clause 61.3.

The Contractor argued that the event to be notified only becomes such an event when the “Contractor believes that the event is a compensation event” – and therefore in this case the 8 week notification period commenced after the 10 week float period had expired. As it gave notification 2 days into that further 8 week notification period it was therefore well in time.

The Project Manager interpreted clause 61.3 on the basis that the 8 week notification period commenced from when the event occurred (i.e. the access was denied) even though at that time the Contractor did not consider that the lack of access would result in a Compensation Event. The Project Manager relied on the wording in clause 61.3 which says:

“The Contractor notifies the Project Manager of an event ... which he expects to happen as a compensation event” and the words “if the Contractor does not notify a compensation event within eight weeks of becoming aware of the event...”.

The wording sets the 8 week period as being from when the ‘event’ (i.e. the lack of access in this case) occurs and not from when the event actually becomes a Compensation Event. In the Project Manager’s opinion an ‘event’ under clause 61.3 is not defined as being an event that has actually become a Compensation Event.

The parties fall into dispute over this matter, and you, as the Adjudicator, need to resolve the dispute as to whether or not the Contractor’s notice was ‘out of time’. Your Decision would obviously need to be based upon the wording of the contract and not be based upon what may seem to be common-sense or fair.

What Decision would you reach?

Solution

As Adjudicator, I would approach this dispute as follows;

Clause 61.3 says that the Project Manager notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event (emphasis added).

In this case, and because of the 10 week float period, the event would not actually become a compensation event until after that 10 week float period had expired, and, although the Contractor may be concerned that the event may become a compensation event the longer into the 10 week float period that the situation remained unresolved, he would reasonably be expecting that access would be allowed before the 10 week float period had expired and, if that was the case, the event would not become a compensation event. Therefore, literally until the expiry of the 10 week float period the Contractor could reasonably argue that he did not expect the event to become a compensation event, and he was not therefore required to give notice to the Project Manager pursuant to clause 61.3 until after the expiry of the 10 week float period.

At this point, it is worth noting that the Contractor may have had an obligation to give an Early Warning about this matter at a much earlier stage, but that is a completely different matter to the requirement to give a notice of a compensation event.

Therefore, in the circumstances of this case, I consider that the Contractor would be correct to say that the event would not become a compensation event until after the 10 week float period had expired, and further, I consider that the Contractor would reasonably not have expected the event to become a compensation event until after the 10 week float period had expired.

Consequently, I would consider that the Contractor would have 8 weeks from the end of the 10 week float period to provide a notice that was compliant with clause 61.3, and the fact that he provided such a notice only 2 days after the expiry of the 10 week float period, meant that the Contractor’s notice did comply with clause 61.3.

I would not accept the Project Manager’s interpretation that the Contractor was aware of the event when access was denied and therefore notification of a compensation event should have been given within 8 weeks of the lack of access occurring, because clause 61.3 says

“The Contractor notifies the Project Manager of an event which has happened or which he expects to happen as a compensation event ...” and “ if the Contractor does not notify a compensation event within eight weeks of becoming aware of the event ...”.

When read in this context, the ‘event’ referred to under clause 61.3 that starts the 8 week notification period off, is referring to a compensation event, not to an event that may at a later date become a compensation event.

Based upon the above, I would therefore Decide that the Contractor’s notification under clause 61.3 had not been given out of time, but was a notice that complied with clause 61.3.

Conclusion

As this relatively simple case demonstrates, an Adjudicator would need to have a full understanding of the NEC 3 contract to reach the above Decision.

Unfortunately, because very few of the clauses in the NEC 3 have been tested and/or interpreted by the courts, at the moment each Adjudicator is left to make his own judgment regarding matter such as this, and, naturally, some Adjudicators may reach a different conclusion to the solution set out above.

Peter Barnes
January 2011

 
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