NEC ECC: Challenge of a Z Clause relating to Corona Virus

Due to the COVID-19 outbreak the government has implemented a 21day lockdown, meaning the project has been stopped. As this is a “force majeure” event and we have notified a Compensation Event under clause 60.1(19).

In the Project Managers reply he has referred us to clause Z4.1 (added to clause 60.1(13). & 61.1(19) which states - “Only the effect of time is taken to account in assessing this Compensation Event. The Prices are not to be changed.” We had not picked this up on Contract award.

This in essence means that the Contractor will have to foot the bill, without compensation, for all resources (Security) and facilities (Site Establishment) remaining on site for the duration of the lockdown, the implications of this, will greatly disadvantage the Contractor, to which we feel goes against the values of the Contract.

My questions is:
Is there any way to challenge this clause now? So that the Contractor may be compensated in order to meet payments that will be due by sub-contractors.

Not directly it seems.

Up until yesterday though, the requirements to close non-retail ‘premises’ was not a legal requirement. It is now due the Coronavirus Bill being enacted and becoming law i.e. an Act.

If the Pm has given instructions though, as per clause 19.1, which change the Works Information (NEC3)/ Scope (NEC4) then this could be a compensation event under 60.1(1).

Hindsight is a wonderful thing isn’t it, but it just goes to show the importance of reviewing any contractual amendments as to what they mean, and if you are not sure give them to someone who can tell you whilst you are still tendering.

The wording of that amendment is pretty clear. You only get time not cost in any such event. You can spend a lot of time and energy debating whether that is a “fair” amendment, but in theory there is no such thing as “unfair” risk transfer if you had the chance to price for it.

I regularly carry out Z clause reviews for my Contractor/Subcontractor clients at tender stage to highlight exactly points like this, so they can either try to exclude such an amendment, price the risk or in some cases walk away from the tender altogether - depending on what the amendment is.

Only way to really challenge it is through the courts - but you have to go through adjudication first and a very long subjective road to travel down with no certainty of outcome. Unfortunately this was avoidable in first place at tender stage by at least making a conscious decision as to what to do with it.

To build on Jon and Glenn’s answers the Z clause as you’ve quoted it is a fairly ham-fisted approach at amending the contract to exclude liability for cost in regard to weather and force majeure if it’s the only amendment made to the compensation event provisions.

Clause 62.2 entitles you to include cost and time in the compensation event quotation clauses 63.1 and 63.3 explain how to assess the cost and time, clauses 63.4 and 63.6 also refer to cost and time. If non of these clauses was also amended then it might be possible to construct an argument to say that the contract is at best ambiguous. If you stand to lose a significant amount of money then it would be worth looking into this in further detail.

Hi Jon & Neil, thank you for your responses.

Are we able to revise & resubmit the CE notification, not notifying the event under clause 60.1(19) anymore but under 60.1(1) as the PM instructed us, under clause 19.1, to abide by the enforcement and vacate the site or X2 - as the enforcements of the Act surely constitutes to a change in the law?

You can only do that if the PM’s instruction required a change to the Works Information.

X2 would also give you a route to a CE provided your contract was entered into before February 2020. See this post for further details:

If you’ve been instructed to leave site then you may also have entitlement under 60.1(4); although it could turn on the specific wording of the instruction