NEC outlines contractual guidance

 

The construction industry’s leading procurement contract suite, NEC, has issued guidance for navigating its contracts during the coronavirus.

The guidance relates to the most commonly used Engineering and Construction Contract (ECC), although similar actions apply to all other NEC contracts.

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'While advice is given in relation to the standard wording in NEC4 contracts, if modifications have been made, the contract should be reviewed to check whether this guidance still applies,' NEC said in a statement.

Following high volumes of enquiries from clients and contractors over the contractual complexities of sites shutting or being delayed due to the effects of COVID-19, Peter Higgins, NEC4 contract board chair, has outlined some key points of guidance.

The advice helps contractors make sense 'of their obligations and legal standing, particularly in relation to Clause 19, which many contractors will be looking to utilise' - the procurement body said.

'While the impact of the virus will vary between different countries, and affect contracts in different ways, the main problem is likely to be the unavailability of resources - primarily people but also plant, materials and equipment,' Mr Higgins said.

'An early warning of this should have been given by either the contractor or the project manager so that discussion about the potential impacts could be held in advance, and mitigation measures identified. And as the impact of the virus develops, and restrictions are implemented which effect works, further early warning meetings should be held.'

Mr Higgns highlighted that governments in some countries had imposed specific restrictions on movement of people and goods.

If the worksite in the contract is located in such a country and if Option X2 – changes in the law – has been incorporated into the contract, 'those restrictions would be a compensation event and the impact would be assessed in accordance with the contract'.

Where work has had to be stopped or suffers delay, because of the virus, Clause 19 – prevention – may well apply.

'If the impact stops the whole of the works being completed by the date for planned completion shown on the accepted programme, or being completed at all, then the provisions of this clause apply and the project manager should take control of dealing with the matter,' Mr Higgins said.

'An event which passes this test will also be a compensation event under Clause 60.1(19), with instructions issued by the project manager to deal with the matter also likely to be compensation events, through a change to the scope, stopping or not starting work or other events identified in Clause 60.1.'

However, under Clause 19 the delay must impact the completion date of the whole project not just part of it, and the clause only applies in the case of delay, not an increase in cost.

Mr Higgins added: 'Under the NEC4 Term Service Contract, which does not contain Clause 19 or the corresponding compensation event, the same approach for early warning and proactive management by the service manager should be followed.

'All parties should work together in accordance with clause 10.2 to best address any impact on the delivery of the service due to the coronavirus. While the short contracts do not include Clause 19, they do include the early warning procedure and (with the exception of the NEC4 Term Service Short Contract) provide for the event being a compensation event. This emphasises the point that the Client should be actively managing the effects of the virus to ensure that actions taken are in the best interest of the project.'

For more information visit the NEC website or view NEC’s Q&A session on handling COVID-19 disruption here.

If you should have any questions regarding specific NEC contracts, please contact the NEC helpdesk.

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