REUTERS | Eduardo Munoz

Less is more in NEC and ICC contracts?

In advance of the amendments to the Construction Act 1996 coming into force in October 2011, the bodies that produce standard forms of contract issued amendments to cater for the Act’s amendments. Some were simply a matter of changed wording (for example, “withholding” changed to “pay less“) but some changes to the NEC and ICC standard forms give rise to some interesting drafting questions.

Amending NEC

The revision sheet to the main NEC3 Engineering and Construction Contract (ECC) or “Black Book” is just one page long. However, the revisions and the interplay with some of the existing terms raise some tricky issues on:

  • Payment (including default notices).
  • Suspension, costs of suspension and compensation events.

Payment (including default notices)

The new payment provisions state that the Project Manager’s certificate (the payment notice) specifies the notified sum. The Construction Act 1996 (as amended) requires the payee to give a default notice if the payer fails to give a payment notice.

NEC’s guidance states that “where payment is made without the issue of a certificate, the contractor’s application will constitute the payment notice”. The revisions to the Black Book do not say this and it seems that this part of the guidance actually refers to contracts (such as the Subcontract) where no payment certificate is to be given, rather than those where it is possible to give one. In the Black Book it is presumably NEC’s intention that the payee’s right is to be “read in” as the right to give a default notice cannot be excluded under the Construction Act 1996 (as amended).

Suspension, costs of suspension and compensation events

The wording relating to the notice to pay less is revised and the final date for payment is defined as 14 days after the date on which payment becomes due. If payment is not made by this date, then the contractor has the right to suspend under the Construction Act 1996. This right is a compensation event under NEC and, by clause 63.3, the applicable delay is the length of time that planned Completion is later than as shown on the Accepted Programme. It follows that only critical delay is recoverable, which may be inconsistent with the Construction Act 1996 (as amended) (which appears to provide for an extension of time for the whole of the period of suspension, regardless of whether it is critical or not).

Further, the revisions do not expressly provide for the costs of suspension to be recovered. Instead, the suspension is to be regarded as a compensation event. As it stands, payment of interest under clause 51.2 is the contractor’s remedy for late payment, with a mixture of actual and forecast cost recoverable for the compensation event under clause 63.1. It remains to be seen if this is compliant with the Construction Act 1996 (as amended), referring as it does in section 112(3A) to “reasonable” costs and expenses being recovered.

There is a time bar under clause 61.3 of the NEC if notice of a compensation event (such as suspension) is not given within eight weeks of the contractor becoming aware of the event. This amounts to a limitation of the right to recover time and money for suspension that the Construction Act 1996 (as amended) otherwise grants. Is this permissible under the Act?

There is no authority on the point but I would suggest that this clause creates a separate obligation to give notice within the specified period for which damages (loss of the claim) are recoverable in the event of breach. We may, however, see employers seeking to reduce the applicable period so that the time bar clause “bites” more speedily. Alternatively it may be said that the Project Manager has notice of this event and should have notified it to the Contractor.

ICC Conditions

Turning to the ICC (formerly ICE) Conditions, the position can be contrasted with the NEC in that in the amendments, specific provision is made for a default payment notice. It is provided that, if the Engineer fails to give a payment notice no later than five days after the payment due date, the Contractor’s monthly statement shall be the payment notice. In the event that the Contractor did not give a monthly statement, it may still give a default payment notice.

The difficulty with this provision is that the payment due date runs from the date of the Contractor’s monthly statement so if no such statement was given, how is that date to be established?

Summary

It is not necessarily the case that the shorter the revisions to the standard form, the fewer the problems. As highlighted above, some further drafting may be needed to resolve these points. On this occasion, less may actually mean more.

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