We have been running a series of seminars comparing various engineering contracts, NEC3, MF/1, IChemE and FIDIC.

On NEC3 we concentrated on recent court decisions.

Most of the NEC3 decisions that come to the court’s attention have been as a result of adjudications with the court commenting on appeals from adjudicators’ decisions.

What can be gleaned from these decisions?

  1. If a compensation clause has been removed, it can be difficult to get an adjudicator, let alone the courts, to allow it in through the back door.

In a recent case involving a dispute over the supply of a gas pipe line a contractor wanted to recover its costs in relation to extra rock and other materials encountered by it while laying a pipeline. However 60.1.(12) physical conditions - had been removed. The contractor argued 60.1(14) (Employer’s Risks) or 60.1(19) (Prevention) would entitle them to Compensation Event. The adjudicator was not persuaded and nor were the courts. The moral - if you remove physical conditions as a compensation event, you can come unstuck.

  1. Another case highlights the fact that undertaking more work than was originally anticipated may not be a compensation event. The case involved highways maintenance in an area where the volume of pot holes to be repaired turned out to be far more than the contractor had bargained for originally. The Contractor argued that this meant they were entitled to compensation as one of the compensation grounds was “a defect in the physical condition of Area Network”. The Court, on an appeal from an arbitrator’s award, took the view that pot holes can arise for a number of reasons (weather, traffic, maintenance, etc) and did not agree that the number of pot holes encountered meant the contractor was entitled to charge more for carrying out the service required of it in the first place.
  2. In another case a point was made that NEC3 users may be familiar with, which is that neither contractor, or in this case its sub-contractor, complied with the terms of the NEC3. The adjudicator decided to look at the prospective effect of a compensation event when valuing it, and not as clause 63.1 prescribes, going backwards and then forward to value the effect of a compensation event. As the work had been done by the time the compensation event was to be valued, the adjudicator decided that the majority of its value would be assessed on a prospective basis. The Court found nothing wrong with that approach.
  3. Lastly, what happens if instructions are given outside the usual format or communications required under NEC3? The instructions in this case were in meeting minutes. The contractor was able to rely upon the contents of meeting minutes to defend its application for a compensation event when it was asked to do more work, additional testing for asbestos, than it had previously been instructed to do.

What the cases illustrates is that if there is room to interpret NEC3, the Courts will look at what people have done during the project, as well as the exclusions and inclusions in any NEC3 contract.

NEC3 is not a completely prescriptive contract, its drafting leaves it open to its users to interpret the contract and make it work for them and their project.