Love it or hate it (I know where I stand!), the NEC form of construction contract is here to stay and is becoming increasingly commonplace in the construction industry, both as a building contract and as a consultant appointment. As NEC contracts become more entrenched, there are inevitably an increasing number of cases in which its provisions are being scrutinised by the courts. Set out below is summary of two such cases, both of which went to the court of appeal.

Payment Provisions

The Scottish case of SGL Carbon Fibres Ltd v RBG Ltd [2012] reiterated the established principle of “he who avers must prove”. SGL employed RBG to carry out engineering works at its premises in Scotland under the NEC3 June 2005 Option C from of engineering and construction contract.

A dispute arose regarding an alleged over-payment by SGL to RBG. Section 5 of the NEC is, of course, silent on the question of over-payment and simply sets out the payment procedure. However, the employer insisted that, notwithstanding this, the contractor was obliged to “own up” to the alleged overpayment it had received and repay the money. The contractor rejected this and the matter went to an arbitrator who found in favour of the contractor.

The Outer House of the Scottish Court of Session then rejected an appeal by the employer against the arbitrator’s decision. Lord Glennie found that the burden of proof in this case lay with the employer to prove that any sums paid to the contractor amounted to overpayment, in the same way that the contractor bore the burden when seeking additional payment above what was certified.

While Lord Glennie’s opinion is not binding on the English courts, this judgement will be useful in informing any arbitrator or adjudicator dealing with a similar payment dispute under NEC contracts.

Compensation Events

The case of Atkins Ltd v Secretary of State for Transport [2013] concerned the validity of a compensation event under an NEC-based contract. Atkins was employed by the Secretary of State for Transport to maintain part of Britain’s road network under the Highways Agency’s Managing Agent Contractor (MAC) contract.

The MAC was an amended form of NEC3. In carrying out the works, the contractor encountered what it considered to be an excessive number of potholes and claimed extra payment as a compensation event under amended clause 60.1(11). The claim was made on the grounds that the contractor had encountered defects in the physical condition of the site in excess of what would be reasonable, in accordance with the wording of clause 60.1(11).

The Secretary of State for Transport rejected this claim and the arbitrator found in its favour. Akenhead J in the Technology and Construction Court TCC rejected the contractor’s challenge to the arbitrator’s decision on the basis that a higher prevalence of potholes than was expected did not constitute a compensation event because it is “extremely difficult” to assess what would actually constitute a reasonable number of potholes.

The judgement shows the TCC interpreting an NEC-style contract clause without any particular difficulty, notwithstanding a feeling among some construction professionals that the compensation events under NEC are difficult to understand and problematic to enforce.