NEC ECC: Project Managers Assessment of a CE is clearly at odds with clause 63.1 provisions, what is the Contractors remedy?

NEC3 and NEC4 Contracts Compensation Events
1

Our Contract is NEC3 Option A with additional clauses allowing a reduction in prices for omitted works instructed by the PM

The PM has accepted a quotation for additional work in 2 areas. The work was completed in area 1 but found not to be required in area 2.

PM has since only valued a proportion of the implemented CE within the account. When challenged that the implemented CE changes the Prices and therefore he should be valuing all of the implemented CE, he proceeded to issue an instruction omitting the work and requesting a quotation under 61.1. (Additional clauses added to Contract allowing for a reduction in Prices). This instruction is over a year after the work would have been carried out if it had been required.

This was provided as per Cl 63.1. This assessment did not take into account the back up to the originally implemented CE quotation

PM has rejected the new quotation for the omitted work stating that it bears no resemblance to the original quotation.

My view is that this is similar to using the Activity Schedule to assess a compensation event (i.e. only by agreement) and that the PM cannot reject the quotation for this reason.

Other than Adjudication, are there any other remedies available to me?

2

Short Answer

  1. If collaborative efforts have failed, the Contractor’s remedy is to invoke the dispute resolution procedures under clause W2. In the absence of any other arrangements, it is adjudication. Of course, litigation is always available. But there may be other pragmatic ways forward.

Long Answer.

  1. It appears that the compensation event to include additional work in 2 areas was already implemented under clause 65.1 initially as you mention that the ‘PM has accepted a quotation’.

  2. However, the Project Manager (PM) is allowed to issue instructions under clause 14.3 to change the Works Information and notify compensation event under clause 61.1. In this case the omission of the works in area 2 (unless there is other Z type modifications limiting the PM’s powers or a time bar).

  3. Therefore, it may be difficult to dispute the PM’s authority to issue instructions to omit part of the works unless it is a case of true variation under law.

  4. It is correct to assess that new compensation event (say a negative compensation event in this case) under clause 63.1 (for Prices only) as this clause outlines the method of assessment of all compensation events. That method is the assessment of the changes to the Prices to be “ the effect of the compensation event upon” the Defined Cost (actual or forecast) and Fee. Therefore, it should use current rates and prices (unless agreed otherwise in the contract and Contract Data) and not the original quotation.

  5. If the PM’s assessment (PMA) is based on the reasoning that “it bears no semblance to the original quotation” as you state, it clearly falls foul of clause 63.1 (unless there is any other agreement). It is very important for the PM to remember that its assessments need to be impartial under law (see Costain v Bechtel, 2005).

  6. Normally, in case of omissions, the PM should have no hesitation in using new rates and prices (in this case a year latter) because it may result in higher reductions.

  7. There are remedies available other than adjudication (and litigation) to address your disagreement and dissatisfaction but it depends on the terms of the contract or the willingness of the parties.

  8. Please refer to the dispute resolution clauses within your contract, normally within clause W2 or clause Z.

  9. It is customary to have an intermediate level of formal dispute resolution procedures (without prejudice to the right to refer the dispute or difference to adjudication at any time). This intermediate level can be called by several names and have slightly different mechanisms in terms of its power to resolve the dispute: Conflict Avoidance Panel, Dispute Review Panel, Management Discussion, Dispute Board, etc.

  10. If no such arrangements are found in your contract then you do not have any formal remedies enshrined in the contract other than adjudication and litigation.

  11. However, there may be other pragmatic methods but will need the agreement of the PM (or the Client/Contractor).

  12. Mediation - this is a non-binding ‘softer’ approach but would need the agreement of the parties.

  13. Hiring of a competent third party (a consultant for example) to produce and recommend a non-binding assessment. Such assessment, if coincides with the Contractor’s assessment can be presented to the Employer for his consideration. An Employer will be able to overturn a PM’s assessment.

  14. If these methods are not possible due to cost or other reasons, in the absence of adjudication or litigation, a final effort can be to collect standard publications and articles around clause 63.1 (including NEC’s own Guidance Document) and present those to the PM and the Client.

  15. I hope you and all the parties will be able to find common grounds.

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3

You don’t say why the work wasn’t carried out at the time originally required, “This instruction is over a year after the work would have been carried out if it had been required.” Was this captured with a CE at that time.

The assessment of the CE, which is the deleted work items, should be based on the change in Defined Cost + Fee due to the change. Due to progress of the work since the original quotation, the new quotation does not have to be constrained to original. However you need to ascertain the “dividing date” for the quote as per clause 63.1.

The other remedy available is to try and engage the PM and/or the Employer in a discussion. I would suggest you attempt this before considering adjudication.

4

You need to apply the rules of 63.1. It is forecast Defined Cost from the point either the instruction was given in writing, or for all other events when the compensation events was notified. Actual defined cost only comes into play if there has been cost incurred before this “switch point” (which is given the name “dividing date” in NEC4).