The courts have, surprisingly, had very little involvement with the NEC family of contracts: McAlpine PPS Pipeline Systems Joint Venture v Transco [2004] and Rossco Civil Engineering v Dwr Cymru Cyfngedic (Welsh Water) [2004], where both cases considered whether earlier versions of the NEC were compliant with the adjudication provisions of The Housing Grants, Construction and Regeneration Act 1996, (the Construction Act); and Costain and others v Bechtel [2005] which considered the independence of the project manager in the certification process. The latter is clearly the more significant case and held that the project manager had to act impartially between employer and contractor when assessing payments.
The lack of judicial guidance or intervention appears to have been an underlying aim of the NEC family. The chief architect of the NEC contracts, Dr Martin Barnes, wanted a ‘non-legal’ contract as evidenced by his comments of nearly 30 years ago: “The management of projects has become a science with its own set of rules, techniques and words which are not even mentioned in the existing standard forms. If the conditions of contract were re-drafted from first principles, having regard to modern management methods, a more purposeful document could be produced.”
Another distinguishing feature of the NEC3 family is that from a legal perspective the contract may best be described as a ‘relational contract’, such that the actual relationship between the parties is more important than the contractual rights and obligations. The opening clause makes this clear: “The employer, the contractor, the project manager and the supervisor shall act as stated in this contract and in the spirit of mutual trust and co-operation.”
The concept of ‘mutual trust and co-operation’ was considered in Birse Construction v St David [1999] 194 in the context of a non-binding ‘Partnership Charter’ and the court held that those words provide the standards by which the parties were to conduct themselves.
With the increased emphasis on project management and site relationships, one could be forgiven for thinking that lawyers have no role with the NEC3 contract. This is not correct — lawyers have and will have a significant role in ensuring the success of NEC3 and of the 2012 build programme.
This is for two fundamental reasons: firstly, the concept of an un-amended NEC3 contract is no more than an ideal and, in practice, the commercial realities dictate that amendments are made to the various rights and obligations. For example, contractors have been keen to delete clause 61.3 (the ‘time-bar’ clause) and employers do not like the very broad ‘force majeure’-type clause dealing with Compensation Event 60.1(19). Other larger areas ripe for bespoke amendment include key performance indicators and the target cost regime. The Main Option C (Target Contract with Activity Schedule) is very popular and has focused much greater attention to the way in which payments, defective work and risks should be overlaid onto the target cost framework. In short, like it or not, bespoke amendments are often made to the NEC3.
The second reason builds on the project management and co-operation cornerstones. The NEC3 family has been chosen because it provides the basis for collaborative working, the early identification and reduction of risk and early and prospective management of claims and disputes. Paradoxically, the strengths of the NEC3 can also evolve into its weaknesses. If the project management breaks down for whatever reason (relational, unforeseen, commercial) then the contract reverts to the orthodox position, such that claims and disputes eventuate and are more than likely to be resolved post completion of the works. This is not to suggest that project management and the law are polarised and enemies — on the contrary, both work together but in the bad times when the project management system does not operate as intended, the ‘law’ naturally takes the leading role.
It is often said that disputes in the construction sector are inevitable (a fact recognised by the Olympic Delivery Authority who set up the Independent Dispute Avoidance Panel). This is no different under NEC3 when contractors challenge the time-bar clause or when early warning notices are ignored, or when “there are too many compensation event notices”. Disputes will occur and it is clear that the latter will play a major part in avoiding and resolving the inevitable problems.
Hamish Lal is a construction and engineering partner at
