NEC ECC: Cl 60.1(12) Physical Conditions & Utilities

NEC3 and NEC4 Contracts Compensation Events
1

Under NEC3 the phrase physical conditions as applied to Cl 60.1(12) isn’t explicitly defined in the contract or associated guidance notes. The guidance notes are focused on physical conditions in respect of the underlying geology, but there are of course other things, such as utilities in the ground.

For a particular project, an uncharted utility has been identified upon excavation which clashes with a structure foundation to be constructed by the Contractor as part of the WI.

We provided all utility records to the Contractor at time of tender, but obviously this utility wasn’t shown to be there.

My question is therefore whether the uncharted utility constitutes a physical condition of the site or not? It is there after all.

I understand from the ICE conditions of contract that a physical condition was defined as everything natural or man-made within the site, does the same basis hold true in the NEC form of contract?

Thinking through the solution to the problem, the only solution is to move the utility out of the way, the WI cannot show a utility passing through the structure’s foundation. So even if the discovery of the utility is found to not be a CE (subject to responses received) I would, as PM, have to instruct the relocation of the utility via a change to the WI and therefore notify a CE arising under 60.1(1).

Similarly, as we all know, utility records are renowned for their inaccuracy. If the utility had been shown on the drawing provided by the utilities in the SI to be on (say) the left hand side of a 7.3m wide carriageway, but found on site to be on the right hand side of the carriageway, is this a CE, or is it reasonable to have expected an experienced Contractor to have judged there to be a risk that the utility would be found to be in a different location? How far away from the line on the drawing provided by the utility is therefore unreasonable to not have allowed for in his tendered price?

Its all rather subjective, unlike the objective nature of the NEC in other respects, particularly weather.

Does NEC4 tighten up this definition in any way following (a) experiences from use and (b) legal precedents?

2

This is probably one of the most contentious of the CE events, apart from deciding on the effects of a ‘weather event’ CE. NEC4 does not alter the wording under either clause 60.1 (12), 60.2 and 60.3, so the tests remain the same as NEC3.

Firstly, ‘physical conditions’ is not defined, as you have said, and is often associated with ground conditions, which is not surprising considering the ICE origins of clause 60.1 (12). It must be within the Site (above or below ground) and be ‘encountered’, implying a direct encounter, such as the discovery of the utility in your case.

The clause operates on the assumption of an ‘experienced contractor’ at the Contract Date, applying a test of ‘small chance of occurring’, factoring in ‘reasonableness’. So you assume the position of an ‘experienced contractor’ and consider what is likely to occur, based on your experience of undertaking similar works in similar conditions. You then decide how likely the ‘physical condition’ is to occur and then make an appropriate allowance accordingly. The CE assessment is based on the difference between ‘actual’ and ‘ought to’.

Any information regarding sub-surface conditions should have been included in the Site Information (SI), not the Works Information (WI). As the PM does not have authority to instruct a ‘change’ to the SI then the matter would be a ‘physical condition’ CE. Having said that, I have worked on projects where the information is in the WI, and also where it is included in both (how do you resolve that one) !!

As much as the applicable clauses apply ‘objective tests’ there are still elements of subjectivity which lead to a difference of opinion. As a Contractor you can help yourself by documenting included allowances (or why an allowance wasn’t made) , which comply with the ‘at the Contract Date’ test and also provide a basis for constructive dialogue.

As to the question of how far the utility is assumed to be from the line on the drawing, clause 60.3 is a ‘warranty’ from the Employer as to accuracy. If this doesn’t apply then the tests above will come into play.