NEC4 professional service subcontract (PSS)
Jeremy Dixon BSc MSc FRICS FCIArb FCInstCES Dip Adj, Consultant, Jackson Rowe
THE NEC website guidance is that NEC4 PSS (professional services subcontract) is NEC’s vehicle for appointing a provider of professional services ‘either to a consultant engaged under an NEC4 professional service contract (PSC) or to a contractor under another NEC4 main contract’.
This article considers certain performance obligations and liability issues of the consultant (the subcontractor) where the subcontractor is engaged by a contractor (the contractor), on an assumed design and build procurement route, where the contractor is engaged by the client under an NEC4 engineering and construction contract (NEC4 ECC), with the NEC4 ECC administered by the project manager.
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The NEC4 PSS is a bi-party contract as between the contractor and the subcontractor (together, the parties), with no contract administrator, although there are limited references to the main contract manager, but no direct linkage to any decision-making by the main contract manager in the administration of NEC4 PSS with the exception of the NEC4 PSS clause 15 early warning mechanism.
The contractor is identified within the subcontract data with an ‘address for communications’ and also an ‘address for electronic communications’, the latter entry an assumed single email address, and therefore a sole channel for the exchange of written communications between the parties, to avoid the possibility of conflicting instruction or direction from the contractor to the subcontractor.
The subcontract data also includes an entry for ‘the client in the main contract’ and a corresponding ‘address for communications’ and an ‘address for electronic communications’, although at first glance it is unclear why the subcontractor would be willing or needs to communicate with a head party in contract with the contractor.
Standard of performance and liability issues
NEC4 PSS clause 30.2
NEC4 PSS clause 30.2 states the contractor’s requirement to decide the date of completion and to certify within one week of the date. Setting aside an argument that the contractor should not be ‘a judge in its own cause’ in certifying completion, the contractor’s duty here is intrinsically linked to both the definition of completion (see NEC4 PSS clause 11.2(2) with reference to the subcontract scope) and to the parties strict compliance with NEC4 PSS clauses 31.3, 32.1 and 32.2 from creation to continued monitoring of the accepted programme.
The parties should not under estimate the initial and on-going staff resource required (and in contemplation of implemented compensation events) in order for the smooth running of the subcontract machinery leading towards the discharge of the contractor’s duty under NEC4 PSS clause 30.2.
NEC4 PSS clauses 40.1 and 40.2
NEC4 PSS clause 40.1 requires the contractor to state a quality management system within the subcontract scope, in order for the provision to have efficacy. If there are no such quality management system statements placed within the subcontract scope then it appears that the subcontractor’s obligation falls away through uncertainty. However, if the subcontract scope does propose a ‘quality management system’ to which the subcontractor has reasonable objection, then undoubtedly a pre-contract negotiation in respect to the content of the subcontract scope would ensue.
Based upon the assumption that the subcontractor is content to comply with a quality management system as contained in the subcontract scope, then NEC4 PSS clause 40.2 grants the contractor a right to accept (or otherwise) the subcontractor’s quality policy statement and/or specific project quality plan. Whether or not the subcontractor (a professional consultancy) would be prepared to permit a contractor to own such a right under NEC4 PSS clause 40.2 to accept the subcontractor’s quality policy statement and/or quality plan is subject to debate and indeed such a contractor right might impinge upon the subcontractor’s PI insurance policy terms giving reasonable grounds for objection from the subcontractor on that basis. It is also debatable as to whether or not a contractor has the expertise in forming any decision as to non-acceptance of the subcontractor’s quality policy statement and/or quality plan.
NEC4 PSS clause 41.1
NEC4 PSS clause 41.1 requires the subcontractor to ‘notify... until the defects date’ the contractor where the subcontractor becomes aware of a defect. Thereafter, at completion, the subcontractor notifies the contractor of the defects which have not been corrected.
There are several matters which may prove problematic for the subcontractor and create potential discord between the parties:
i. The subcontractor’s obligation to notify a defect might beviewed as an admission of liability which would potentially prejudice the subcontractor’s PI insurance policy coverage, in the event of a claim being made against the subcontractor;
ii. Notwithstanding the contractor’s duty under NEC4 PSS clause 30.2 to certify completion of the subcontract service, a subcontractor may resile from any perceived re-performance obligation from the date of certified completion to the end of the defects date (in order to rectify a notified defect) and especially where the contractor has placed reliance upon the subcontractor’s deliverables at completion; and
iii. The subcontractor may wish to negotiate the period to the end of the defects date to mitigate its obligation to rectify a notified defect within a restricted timescale, post completion.
NEC4 PSS clause 41.2
NEC4 PSS clause 41.2 and the contractor’s right to have a notified defect corrected by other people potentially places both parties at risk. Firstly if a third party performs part of the subcontract service then the subcontractor has an argument against ownership of any liability for any such third party performance and secondly, the subcontractor would in any case resile against liability for third party performance of the subcontract service, as such third party performance falls outside the subcontractor’s PI insurance policy coverage.
NEC4 PSS clause 70.1
NEC4 PSS clause 70.1 states ‘the client and the contractor have the right to use the material provided by the subcontractor for the purpose stated in the subcontract scope’, which ostensibly relates to a copyright licence in favour of the client and the contractor with respect to the subcontractor’s deliverables in discharge of the subcontract scope.
The position is different if the contractor proposes the inclusion of secondary ‘option X9: Transfer of rights’ where the ‘contractor owns the subcontractor’s rights over material prepared for the subcontract by the subcontractor except as stated otherwise in the subcontract scope’, which translates to full transfer of intellectual property rights in the subcontractor’s deliverables in the discharge of the subcontract service subject to caveats and exclusions which would need to be negotiated by the subcontractor and expressly stated within the subcontract scope.
NEC4 PSS clause X9.1
NEC4 PSS clause X9.1 also states, ‘the subcontractor obtains other rights for the client or contractor as stated in the subcontract scope’. On this basis, the diligent subcontractor would need to thoroughly interrogate the contractor’s proposed subcontract scope inclusions under option X9 in order to avoid taking responsibility (and therefore liability) for any procurement of third party intellectual property rights falling outside the reasonable control of the subcontractor.
NEC4 PSS clause 81.1
NEC4 PSS clause 81.1 states that the subcontractor’s liabilities are, inter alia, ‘claims and proceedings from others and compensation and costs payable to others which arise from or in connection with the subcontractor providing the subcontract service’. While this provision ostensibly relates to public liability matters, an issue of true interpretation of the provision arises. The subcontractor as a professional consultant would be unwise to agree to an express provision whereby an agreement for third party claims in the tort of negligent misstatement constitutes a subcontractor liability.
NEC4 PSS clause 83
NEC4 PSS clause 83 requires the subcontractor (subject to precise agreements stated in the subcontract data) to maintain professional indemnity, public liability and employers’ liability insurances in stated sums and for stated periods. It is noteworthy that in respect to professional indemnity insurance, the market standard caveat subject to commercially reasonable rates and terms does not appear within NEC4 PSS clauses 83.1 to 83.3 inclusive.
NEC4 PSS clause 84.1
NEC4 PSS clause 84.1 contains the contractor’s right to accept the subcontractor’s insurance certificates which state that the insurance required by the subcontract is in force, although precise acceptance criteria to be adopted by the contractor are not stated. The diligent subcontractor would no doubt need to enter into a pre-contract negotiation and dialogue with the contractor in respect to standard market exclusions and caveats in respect to professional indemnity insurance policy coverage.
NEC4 PSS clause 85.1
NEC4 PSS clause 85.1 contains the contractor’s right to insure an event or liability which the subcontract requires the subcontractor to insure if the subcontractor does not submit a required certificate. The diligent subcontractor would no doubt resile from an express provision whereby a contractor client owned a right to insure on behalf of the subcontractor, with the cost of such insurance subject to as contra charge against the subcontractor.
NEC4 PSS clause 87.1
NEC4 PSS clause 87.1 affords the subcontractor a contractual liability cap (subject to a precise agreement stated in the subcontract data and to certain excluded matters) with respect to claims brought by the contractor, with further liability limitation provisions contained in the professional services subcontract if ‘NEC4 PSS option X18: Limitation of liability’ is included (with corresponding precise agreements stated in the subcontract data).
The diligent subcontractor will be aware that an agreement under NEC4 PSS clause 87.1 does not afford the subcontractor protection from claims brought by third parties if ‘NEC4 PSS option X8: Undertakings to others’ is included in the professional services subcontract, or indeed claims brought directly by the client against the subcontractor (the client, in addition to the contractor, has certain rights against the subcontractor under the express provisions of NEC4 PSS whether or not the subcontract data makes specific reference to ‘option Y(UK)3: The Contracts (Rights of Third Parties) Act 1999’).
Where the contractor chooses to include ‘NEC4 PSS option X10: Information modelling’ into the professional services subcontract, then the subcontractor has an extended duty to warn in respect to any matter which could adversely affect the creation or use of the information model. The subcontractor’s extended duty here might be exacerbated depending upon the number of information providers (concurrent appointees of the contractor) and bearing in mind the early warning provisions of NEC4 PPSS clause 15.1 (fourth and fifth bullets).
Jeremy Dixon BSc MSc FRICS FCIArb FCInstCES Dip Adj, Jackson Rowe