NEC ECC: Acceptance of CE quotation and subsequent realisation it was not a CE!

NEC3 and NEC4 Contracts Compensation Events
1

Contractor issued EWN related to ground conditions. PM requested a quotation which was submitted by Contractor and subsequently accepted by the PM.

Following a review by the Clients team, it was found that the information related to the ground conditions had been issued to the Contractor and included within contract appendices. Therefore, Contractor has recovered costs through Activity Schedule and Compensation Event.

My thoughts were

  1. The CE decision has been implemented. My understanding is that, under NEC3, such a decision can then only be challenged by adjudication (and, ultimately arbitration)
  2. Any dispute under NEC3 can usually only be referred to adjudication if notice is given within 4 weeks of the dispute becoming apparent
  3. It is slightly difficult to see how the Employer can raise an adjudication challenging its own decision
  4. It may be possible to re-visit this in the final account?
  5. Still worth raising the point with the Contractor at this stage - there is an outside chance they will agree the CE decision was incorrect

Is there a way out of this situation considering the above?

2

Clause 65.2 states that an assessment of a compensation event is not revised if a forecast upon which it is based is shown by later recorded information to have been wrong. The clause specifically relates to an assessment which in the ECC is the effect on Defined Cost plus Fee and the effect on planned Completion. The clause does not therefore encompass the notification of the compensation event which the PM has previously decided to accept.

Further clause 60.1(8) is the CE for the PM or Supervisor changing a decision which has previously communicated, so if the PM decides that the CE was not in fact a CE he is allowed to change his mind however would concede a CE in doing so. Note this is because clause 61.4 requires the PM to “decide” about the notified event whilst clauses 62.2 and 64.1 require the Contractor and PM to “assess” the effect of the event.

However, if the Contractor has incurred or will incur cost or delay as a result of this changed decision then these should be included in the CE assessment however it’s difficult to see what this would be given that the delay was the Contractor’s risk which is why it wasn’t a CE in the first place.

To answer your other points: (2) if W1 its included in the contract then the Adjudication Table states the relevant timescales however if W2 is included then a dispute can be referred at any time; (3) if it got this far it is unlikely you would be able to put up a defence based on a mistake made by the PM. You either are or are not entitled to a CE under the contract, if you weren’t and the only reason you recovered cost and time was due to a mistake then it is unlikely an adjudicator would help you to hold onto something you shouldn’t have had in the first place, (4 & 5) there is no final account procedure in NEC3, the matter should be treated as another CE. PM should notify the CE as a changed decision under clause 61.1 and instruct the Contractor to submit a quotation, if the Contractor fails to do so the PM should assess it himself under clause 64.1.

3

I think Neil has got this right, but add/confirm:

  • that a compensation event under clause 60.1(8) for a changed decision is not one of the compensation events which can reduce the Prices and no compensation event can bring the Completion Date forward. So this compensation event addresses where the PM or S have got it wrong to the Contractor’s detriment, but not the Employer’s.
  • If in the UK and ‘construction operations’, a dispute has to be able to referenced ‘at any time’ to the Adjudicator so while it might sound a bit daft, the Employer could go to Adjudication to over-turn his own PMs decision
  • under W1, I think that only the Contractor can refer the issue to Adjudication as it is over an action of the PM or S (1 st row of the table in W1.3). Obviously, that wouldn’t be in their (short term) interests: it would, however, be cheaper than arbitration or litigation !

For either W option (and assuming an option A or B), if the Employer refused to pay it or the PM refused to certify it, then the Contractor could go to adjudication on a procedural issue saying look it is an implemented compensation event and therefore we should be paid, regardless of the rights or wrongs of previous decisions.

The best course of action would be to notify an early warning, call a specific risk reduction meeting to which the Employer is invited, lay out clearly why the PMs decision was wrong and hopefully agree that it was, then write a short supplementary agreement effectively making the compensation event and quotation null and void. Sounds simple …