NEC TSC: The Employer has 'defined' R11 under a service level table , but will it meet the legal test for substantial failure

NEC3 and NEC4 Contracts Termination
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  1. The project is Task Order based requiring that a Contractor meets a minimum % of the Contractor’s monthly given target.

Hidden in a voluminous annexure under Performance Targets is the following :

‘‘In the event that a Contractor has not reached the minimum percentage as stated above for three consecutive Task Orders, the Employer deems this as substantial failure to provide the Service under Core Clause 91.2 (R11) and no more Task Orders are issued’’.

The Contract thus ‘‘appears’’ to define substantial failure.The Employer terminates the Service on this ground.In the eyes of the law will this be deemed substantial failure just because the wording says so?
2.What transpires if the Service Manager deems a reason given by a Party for termination as non compliant with ‘‘this contract’’?
3. Can a Party declare a dispute as result of the Project Manager’s rejection of the reasons for termination and refer the issue to Adjudication?

1 Like
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  1. There was a legal case from a few years back where the judge said “you can deem a dog a cat but that doesn’t make it so”. However I follow your view that the contract does at least appear to attempt to define substantial failure, whether the courts would agree is anyone’s guess and may turn on more on the facts. Without more information about the nature of the breach (i.e. how the performance targets operate and how far they were missed by) it’s difficult to assess, I’d recommend you take some legal advice.

  2. Simply put the Service Manager doesn’t issue a termination certificate under clause 90.1, the contract doesn’t require him to not accept the proposed termination notification like it does say with a compensation event notification. This said it would be sensible for him to write to both Parties telling them rather than leaving it hanging in the air.

  3. Yes, either Party could commence adjudication to challenge the Service Manager’s decision, there may be some timing constraints if W1 applies, but if W2 applies then the dispute can be at any time.

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Many thanks for the reply. I would be interested in the full legal reference for the case where the quote is taken from.

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The general approach of the courts is to apply the contract as it is written. If it says that a substantial failure is x then, almost certainly, that is what the court will hold to be the case. As Neil says, there will be some overlay of facts. Importantly, that description plays both ways and if it is 2 below and 1 above throughout the entire service period that would not then be a substantial failure under this contract.

Agree with Neil on 2 and 3 and emphasise his point on telling the parties what he is doing rather than leaving a big black hole on such a critical issue.