NEC4 contracts

Steve Goodwin FCInstCES, Managing Director, GVE Commercial Solutions and Charles Edwards MRICS FCInstCES, Barrister and Head of Chambers, Gray’s Inn Construction Chambers and New Temple Chambers 

NEC4 time assessments – retrospective or prospective?

IN the Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd (2017) NIQB 43 case (the NIC case) the court held on the facts and evidence of that case that, where a quotation for a compensation event was a claim by a consultant (Healthy Buildings (Ireland) Ltd) engaged by Northern Ireland Housing Executive) for work already done, it should be assessed on the basis of actual cost and time incurred and that the use of the word ‘forecast’ should not prevent access by the court to the best available evidence as to the actual time and costs incurred as a result of the compensation event.

It should be recognised that in the NI case the consultant provided a quotation in circumstances where the work had been carried out some considerable time before the quotation was submitted. It is arguable that the English courts dealing with the similar circumstances of the NIC case might take a different approach.

For the avoidance of doubt, it should be noted that any reference to ‘time’ or ‘time incurred’ in the NI case is not a reference to ‘time’ in the context of an ‘extension of time’ or delay (in programming-speak ) but rather a reference to hours worked on timesheets. This is likely to be a major differentiating factor for complex disputes and cases involving issues related to ‘time’.

The NIC case is not binding on the English courts but is persuasive, where the circumstances are likely to be the same. There is much industry commentary on the basis that the NEC terms were ignored by the court. In the court’s defence, the scenario before it was one where the issue was only with costs in the unique circumstances where both parties had significantly abandoned the NEC processes to such an extent that perhaps the court felt a retrospective assessment of costs was the ‘fairer’ option.

A question, however, arises when it comes to an NEC ‘time’ assessment – should the same, or similar, circumstances arise again. ‘Time’ in this context is now a reference to an ‘extension of time’ or delay. In accordance with the NEC4 contract (ECC), where a compensation event arises from an instruction from the project manager, in circumstances where the contractor’s works flow from that instruction, which in theory should always be the case, the dividing date for the compensation event assessment is the date of the instruction. That being the case, the NEC4 contract (ECC) requires that the assessment of ‘extensions of time’ or delay more generally shall be made prospectively.

Quoting clause 63.1:

‘For a compensation event that arises from the project manager or the supervisor giving an instruction or notification, issuing a certificate or changing an earlier decision, the dividing date is the date of that communication.’

In these circumstances, clause 63.5 goes on to state:

‘A delay to the completion date is assessed as the length of time that, due to the compensation event, planned completion is later than planned completion as shown on the accepted programme current at the dividing date.’

In further support, clause 63.8 refers to ‘risk allowances for cost and time’ and clause 63.9 refers to the contractor reacting ‘competently and promptly’. Any retrospective analysis of an ‘extension of time’ or delay would, if the circumstances prevail, inevitably introduce other factors, such as ‘concurrency’ arguments, into the mix – something prospective analysis avoids. The prospective analysis of ‘extensions of time’ and delay, which is the approach required by the NEC4 contract (ECC), is further supported by the SCL Delay and Disruption Protocol, 2nd ed, which advocates the use of prospective delay analysis during the currency of the works.

In section 4 it states, ‘do not ‘wait and see’ regarding impact of delay events... ’ and the parties should attempt so far as possible to deal with the time impact of employer risk events as the work proceeds (both in terms of extension of time and compensation).

A question, however, arises when it comes to an NEC ‘time’ assessment – should the same, or similar, circumstances arise again. ‘Time’ in this context is now a reference to an ‘extension of time’ or delay.

Applications for an extension of time should be made and dealt with as close in time as possible to the delay event that gives rise to the application. A ‘wait and see’ approach in assessing extension of time is discouraged. Where the contractor has complied with its contractual obligations regarding delay events and extension of time applications, the contractor should not be prejudiced in any dispute with the employer as a result of the project manager failing to assess extension of time applications.

Extension of time entitlement should be assessed by the project manager within a reasonable time after submission of an extension of time application by the contractor.

Further, in section 11 it states, where an extension of time application is assessed after completion of the works, or significantly after the effect of an employer risk event, then the prospective analysis of delay referred to in the guidance to core principle four may no longer be appropriate. In Flour v Shanghai Zhenhua Heavy Industry Co Ltd (formerly Shanghai Zhenhua Port Machinery Co Ltd) (2018) EWHC1 (TCC), the judge commented on the correct approach to delay analysis, noting that:

“… there has been extensive debate about the correct approach to delay analysis… and I would accept, that a prospective analysis – in other words considering the  critical path at any particular point in time as viewed by those on the ground at the time – does not necessarily produce the same answer as an analysis carried out retrospectively. The former is the correct approach when considering matters such as the award of an extension of time…”

Prospective analysis and ongoing assessments of compensation events during the currency of a project are cornerstones of NEC ethos. The NEC4 contract (ECC) requires an ‘extension of time’ or delays to be made and assessed at the time, without recourse to actual knowledge and an assessment based on the actual delay suffered, or not suffered, as may be the case.

In support of prospective analysis, Keating on Construction Contracts (11th ed) states at paragraph 8-040:

“... however, in cases where the contract requires a prospective approach during the progress of the works, where there is no provision permitting a retrospective post completion review of entitlement and where the contractor had complied with all the steps required of it to obtain an award contemporaneously, it is possible that such a dispute should be resolved upon the basis of a wholly prospective analysis…”

In accordance with the NEC4 contract (ECC), where a compensation event arises from an instruction from the project manager, in circumstances where the contractor’s works flow from that instruction, which in theory should always be the case, the dividing date for the compensation event assessment is the date of the instruction.In a recent case supporting a prospective approach, the Scottish courts in UK Grid Solutions Limited and Amey Power Services Ltd v Scottish Transmission Plc (2024) CSOH, in relation to the enforcement of an adjudicator’s decision which involved an NEC3 contract (option A), confirmed that the correct approach for the analysis of compensation events under the NEC3 was the prospective approach.

The judgment of the court included extracts from the adjudicator’s decision where the adjudicator confirmed that the correct approach for the analysis of compensation events under the NEC3 contract was the prospective approach:

‘[ 25] Background to the adjudication... one of the issues on which the parties had been in dispute was the correct approach to the assessment of the pursuers’ entitlements for compensation events under the contract... [29]... in broad terms, the adjudicator endorsed the submission of the pursuers and its experts as to the correct approach to be adopted in the assessment of compensation events. In other words, the adjudicator held that compensation events were to be assessed proactively at the time when the project manager had or ought to have instructed the contractor to submit a quotation... the adjudicator also accepted in principle the approach of the pursuers’ expert... ’

Pertinent to this article, the judgment at paragraph 30 also stated:

‘...consistent with his findings in respect of delay, the adjudicator granted pursuers relief from liquidated damages for the same periods...’

The Scottish court did not interfere with the adjudicator’s decision on the correct approach to be adopted in the assessment of compensation events under the NEC3 form, which the adjudicator stated was a prospective approach.

Applications for an extension of time should be made and dealt with as close in time as possible to the delay event that gives rise to the application. A ‘wait and see’ approach in assessing extension of time is discouraged.

Conclusion

The NIC case is not binding on the English courts but is persuasive, where the circumstances are likely to be the same, however, as stated above, it’s arguable that the English courts dealing with similar circumstances of the NIC case might take a different approach.

Notably, a difference in approach has recently been taken by the Scottish courts in UK Grid Solutions Limited and Amey Power Services Ltd v Scottish Transmission Plc (2024) CSOH, in relation to the enforcement of an adjudicator’s decision which involved an NEC3 contract (option A).

An adjudicator confirmed that the correct approach for the analysis of compensation events under the NEC3 was the prospective approach and the Scottish courts did not interfere with those findings.

Until a similar case comes before the English courts we will have to wait and see which approach is preferred. 

Steve Goodwin FCInstCES, Managing Director, GVE Commercial Solutions and Charles Edwards MRICS FCInstCES, Barrister and Head of Chambers, Gray’s Inn Construction Chambers and New Temple Chambers

sgoodwin@gvecs.co.uk

charles.edwards@newtemplechambers.com

www.gvecs.co.uk