NEC ECSS: Consequence of failure by Contractor to respond to Subcontractor's compensation event within 1 week ECSS

NEC3 and NEC4 Contracts Compensation Events
1

I note in the ECSS that there is no consequence for the Contractor’s failure to respond to the Subcontractor’s notice of compensation event.

What happens if the Contractor does not respond within 1 week or at all?

Does that necessitate a further compensation event in terms of clause 60.1(6) failure to reply to a communication within the period required.

What happens then if there is no response from the Contractor?

There seems to be a loop hole in this contract. Any advice?

2

Under NEC4 Engineering & Construction Short Subcontract:

  • the last sentence of clause 61.2 sates “If the Subcontractor notifies the compensation event, it submits a quotation with the notification” and
  • then clause 62.3 states “If the Contractor does not reply to a quotation in accordance with the subcontract and within the time allowed, it is treated as acceptance by the Contractor of the quotation.”
    So NEC4 does cover it provided you submit a quotation at the same time.

However, under NEC3, I agree with you that there is no contract sanction but the Contractor would be in breach of the contract for not doing what it says and you would then be entitled to recompense under contract law … just not through the mechanisms of the contract unfortunately.

3

If I had to follow contract law I would have to prove damages? Would it amount to a material breach of the contract therefore entitling me to cancel the contract? It seems like a major loophole in the contract.

4

Cameron - I don’t see this as a loophole. NEC requires the delay damages to be stated. The law requires them to be a genuine pre-estimate of costs that will be incurred. If the NEC stated £1mil a day then that is what will be chargeable, but through the courts you could claim that is a penalty and seek recovery. key is don’t sign up to £1mil in the first place if you don’t think that is represent-able.

5

Firstly, this is not a material breach : failing to provide the Site would after a set time be for instance.

The damages would be for what you would have got if the Contractor had followed the contract i.e. the value of the compensation event.

6

So would I then follow the dispute resolution process? On an inaction of the contractor?

7

Yes, if you can’t work it through between yourself which is what I strongly advise you do. I.e. escalate up their command chain.

8

Unfortunately the South African market is unsophisticated. We have had no response from the PM since February 2019. We have notified the compensation events but because there is no deeming provision for acceptance we can’t take it further. We will now have to declare a dispute due to an inaction of the Project Manager and refer to adjudication. I assume this is the correct way forward.

9

Yes, that’s the first port of call under the contract … or escalate up to a senior contract within the Client organisation.

10

Thanks Jon. Unfortunately the way our state owned entities are operation, no one wants to make a decision. Its as if they would prefer the Adjudicator to make a decision to which they are then bound so no fingers can be pointed back to them.

Ludicrous I know but that’s how these contracts are currently operating here.

If the Contractor or Subcontractor doesn’t drive the contract then nothing much happens.