NEC ECC: What Contractors could reasonably allow for.

I would be very interested to have the Panel’s views on a court case brought by Atkins namely "Atkins Ltd v Secretary of State for Transport [2013] EWHC 139 (TCC), 1 February 2013.

The main premise of this was the validity of a compensation event under a Highways Agency Managing Agent Contractor contract which was a heavily amended form of NEC3 that was entered into between Atkins Ltd (“Atkins”) and the Secretary of State for Transport (“SST”). During the course of the works, Atkins encountered a greater number of potholes (which it was obliged to repair) than it had anticipated and sought to claim additional payment on the basis that this constituted a compensation event under clause 60.1(11). That clause stated (in similar terms to clause 60.1 of the NEC3 Conditions) that:
“The Provider encounters a defect in the physical condition of the Area Network which … an experienced contractor or consultant would have judged at the Contract Date to have such a small chance of being present that it would have been unreasonable for him to have allowed for it.”.

The judge did not agree that this constituted a compensation event and as such I was wondering that this judgement could be applied to many similar situations where a Client/Employer/PM feels his Contractor could have allowed for something within his gift to have allowed for or at least within his experience. After all experience is one of the major criteria that is used to judge and accept any tender bid. The fundamental problem comes with the question “where do you draw the line in expecting or assessing what is reasonable”.

Thoughts welcome.

Firstly, my view of this case is that it dealt with one of the most disputed of clauses in the NEC conditions, mainly due to the fact that it requires an element of (considered) opinion as to whether a compensation event has occurred or not occurred.

The form of contract was heavily amended over the standard form but the wording of clause 60.1 (11) was similar to that found at 60.1 (12) in relation to the assessment of ‘physical conditions’ compensation events. To be a compensation event the matter has to satisfy all of the applicable bullet points and also the test of an ‘experienced contractor’. This is probably the most subjective part although clearly points to the fact that a tender allowance should be included for physical conditions encountered, up to the point where a CE occurs. This is similar to a weather event under 60.1 (13), although this CE relies on measured data to determine the matter, rather than considered opinion.

One of the biggest problems is deciding the matter after the event, as hindsight can often cloud the judgement. To overcome this, I have previously suggested that a Contractor makes appropriate allowances within their tender and documents these as evidence to support any future disputes on principle. That way the responsibility for determination passes from the Contractor to the Project Manager, who is then required to ‘prove’ why the Contractor’s allowances do not comply with the allocation of risk under the contract.

Note that the test of ‘experienced contractor’ is a benchmark level of assumption and does not relate specifically to a particular contractor. This could mean that a Contractor’s allowance within their tender does not reasonably conform to the stated level of risk, however, this is at least a better starting point.

In my opinion, Atkins did not help their case as they treated the matter as a ‘global claim’ and did not create an evidential link between their tender allowance, the clause(s) in question and the outcome. Too much reliance was placed on a particular bullet point under clause 60.1 (11), which led to discussions on other issues, including interpretation of the clauses, rather than having to demonstrate why Atkin’s argument was not appropriate.

Note that the Atkins contract was largely about ‘defects in physical conditions’ so this would have naturally influenced the interpretation of the ‘physical conditions’ CE clause, although the main principles of; experienced contractor, at the Contract Date, chance of occurring etc were still present.

Agree with everything Andrew says below (or is that above) … previously !

I would say read the clause with the crucial words in CAPITALS “experienced contractor or consultant would have judged at the Contract Date to have SUCH A SMALL CHANCE of being present that it would have been unreasonable for him to have allowed for”.

I.e. not “unexpectedly small” or “unlikely” or other words. It really is transferring quite a lot of risk over to the Consultant or Contractor. And from memory, the judge thought that the amount of potholes found did not reach that high bar.