NEC3 Subcontract Option A Clause 63.5

Apart from assessing an event as normal, are there any other ramifications of this clause. Can the Contractor deduct costs incurred as a result of not having the opportunity to mitigate the potential event, i.e. loss and expense incurred by others as a result of the Subcontractor failing to comply with Clause 16?

63.5 If the Contractor has notified the Subcontractor of his decision that the Subcontractor
did not give an early warning of a compensation event which an experienced
subcontractor could have given, the event is assessed as if the Subcontractor had given
early warning.

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Great question Leslie @Neil_Earnshaw what do you think?

CE assessments are based on Defined Cost plus Fee with Defined Cost being described in the Schedules of Cost Components. Under Option A it’s the Shorter Schedule of Cost Components that is used and at the end of the first paragraph it states that:

“An amount is included only in one cost component and only if it is incurred in order to Provide the Subcontract Works.”

The term “Provide the Subcontract Works” is defined at clause 11.2(13) as “to do the work necessary to complete the subcontract works and all incidental work, services and actions which this subcontract requires.” So this means that the Defined Cost assessed in a CE must be related to your work, not the work of others or loss and expense incurred by others.

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With respect Neil, I don’t believe your response deals with my query and that is:

What are the ramifications of the Subcontractor not giving “an early warning of a compensation event which an experienced subcontractor could have given…”

The purpose of an EWN is to notify the other party of a potential event and to provide the opportunity to mitigate that potential event before it affects the Price, Time or Quality of the Works. However, if the Subcontractor does not give that EWN and the potential event becomes real the event is still assessed as if the Subcontractor had given an EWN. The point I’m trying to make is that other parties may incur costs that might not have been incurred had the Subcontractor issued an EWN. The Employer is not responsible for those costs, so who is? Does the Contractor have recourse against the subcontractor for the cost incurred and under which clause of the NEC?

@Leslie_Hall There is scope for a series of anomalies around the notification of EWs and without knowing all the details it is difficult to address your question accurately.

  • Note that in clause 16.1 the matter should be notified as soon as either the Contractor or the Subcontractor becomes aware of it. Therefore if the Contractor argues that the Subcontractor should have been aware and should have notified the matter earlier, then it is feasible that the Contractor could have been aware of the matter and they should have issued an EWN. Depending on the specific circumstances, it may be very difficult to illustrate (prove) that the Subcontractor failed to issue an EWN timeously.
  • If the matter does not come to light until a compensation event is notified, then there is no need to issue an EWN.
  • The specific details and timeline for the matter at hand will influence the answer to your question yesterday. If the CE is assessed as if the Subcontractor had given an EWN then at what point in the timeline of the matter is it assumed the hypothetical Subcontractor EWN was issued, when the matter may have been identified by the Subcontractor (or Contractor) [hours, days weeks or months before the matter became real]; just before the potential event becomes real, or during or after the event becomes real.

Sorry to provide little guidance, but in my view the contract is not particularly clear on this and the specifics of the matter at hand will strongly influence the interpretation of clause 16.