We are currently acting as a QS for an Employer on an NEC3 ECC project in London and have run into a procedural dispute regarding Section 9 (Termination).
Situation:
Our Employer decided to terminate the Contractor’s obligation to Provide the Works. To initiate this, the PM issued the initial Notification of the Employers intention/reasons. The PM agreed with the Employer and, following a brief consultation period, issued the formal Termination Certificate to both parties, and we are now eight weeks into the 13-week Final Assessment period.
Argument:
The Contractor has engaged legal counsel who argues the termination is invalid. Their position is that:
Clause 90.1 states: “If a Party wishes to terminate… he notifies the Project Manager and the other Party…”
They argue that because the “Party” (the Employer) did not issue the notice directly, the condition precedent for termination wasn’t met.
They claim the PM cannot notify themselves.
We struggle to find where the contract explicitly requires the Employer to communicate directly, as the PM typically handles all formal administration on the Employer’s behalf. However, the Contractor is adamant that the PM’s notification was a procedural failure, invalidating the Termination.
Query:
Does Clause 13 allow the PM to act as the Employer’s agent for this specific notice, or is this one of the few times the Employer must sign the letterhead themselves?
If the notice is deemed invalid, does the PM’s subsequent Termination Certificate rectify this defect?
As the initial procedural requirement (notifying the Project Manager and the other Party) is a condition precedent under the termination procedure, then it needs to be strictly complied with for the consequent action (issuing a termination certificate) to take effect.
Although the Project Manager correctly issued a termination certificate as the reason complied with the contract, this would unlikely be effective as the initial notification was not given correctly, that is not given by the Employer to the other Party (Contractor).
There are numerous stated actions for the Employer under the NEC3 ECC contract which are not required to include the Project Manager, of which this is one of these.
It looks very much as though the Project Manager, in this instance, is required to act impartially and is not acting as the agent of the Employer. The termination certificate would not remedy the Employer’s ‘default’.
Our view on using the PM to issue the Clause 90.1 notice stems from the fact that Clauses 13 and 14 (which govern communications and roles) are silent on any restrictions regarding the Employer’s power to act through the PM.
If the PM is the primary vehicle for formal administration, and there is no explicit ‘reservation of powers’ in the contract stating that the Employer must sign this specific notice personally, our argument was that the PM acted as the Employer’s proxy.
However it appears based on your response that, although The Employer is not mentioned within Communications, they still have the implied right to notify and they should have done so in this instance.
This could be a tricky one. The dual capacity of the PM, as the Employer’s agent and as an independent certifier, might play a role here as one could argue that the notification was undertaken in the former capacity, whilst the certification in the latter.
Agreed, and mirrors a few legal opinions we have sought out to date.
I can see both sides of the fence, however, there is a strong push from the opposing Party that the PM simply cannot notify themselves even ‘on behalf’ of the Employer, therefore, regardless of clause 13, they argue that it should be the Employer directly who issues this.
There appears to be a lack of clarity around the powers of the Employer in the NEC - I’m not sure if this is by design or a general oversight.
@May I see your point. It might be worth the trouble of doing it all over again properly so as to avoid a repudiation claim from the Contractor (by virtue of wrongful termination).
I am closest to @Andrew_W-I’s view here - it is either the Employer or the Contractor, as the Parties to the Contract, who notify termination. The Project Manager then administers the practicalities. The problem is that the Employer and Contractor are not usually specific individuals, so identifying the person who signs can be troublesome.
My understanding here is that the Project Manager has also acted in the role of Employer. I’d always advise that the roles be separated as then the question can’t arise, but perhaps it wasn’t possible here.
That is not necessarily a problem, but it would need to be clear which capacity an individual is acting in. For example, if you signed the 90.1 notice as ‘Project Manager on behalf of the Employer’, I would think that had the potential to be insufficiently clear. You are either one, or the other. Which? This could hinge on exact words, and getting a definitive answer would likely be difficult, costly and slow. @Peter_Papadakis’ suggestion is practical.