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February 02, 2018

Understanding defects under NEC

Understanding defects under NEC
What is a defect? This is a question that surprisingly few standard contracts address. The NEC suite is an exception.

The NEC4 Engineering and Construction Contract (ECC) core clause 11.2 (6) defines a defect as, ‘a part of the works which is not in accordance with the Scope’. Clause 41.4 goes on to make it clear that, ‘If a test or inspection shows that any work has a Defect, the Contractor corrects the Defect and the test or inspection is repeated.’

Option X15.1 notes that, ‘The Contractor is not liable for a Defect which arose from its design unless it failed to carry out that design using the skill and care normally used by professionals designing works similar to the works.’

Design and workmanship defects


One issue that can arise where the design is not the contractor’s responsibility is whether a particular defect is a design defect or a defect of workmanship. For example, the choice between a flat and a pitched roof will be a matter of design, but the choice between a screw and a nail may well be a matter of workmanship.  

In the July 2017 decision in Imperial Chemical Industries Ltd v. Merit Merrell Technology Ltd, [2017] EWHC 1763 (TCC), the former had engaged the latter to carry out the manufacture, construction, installation and commissioning of steelworks at a new paint factory under NEC3 ECC. A number of issues arose over the quality of the welding and whether it was defective or not. 

The court had to consider the testing regime the contractor was required to comply with. The minutes of the post-tender meeting noted that visual inspection and 10% dye penetration were to be used, not radiography. Radiography is more expensive but provides a more stringent testing regime. The experts agreed that a great many of what were described as ‘defects’ in the welds could only be detected using radiography. 

Agreed testing regime


The judge was clear that the welding and inspection regime was established by the contractor prior to starting work and approved by the client and project manager before physical welding commenced. The agreed testing regime meant it was not possible to identify all types of defect listed in the relevant British standard. 

The client suggested the contractor should be held liable for welds contrary to those listed in Table 5 of the British standard, even though it was agreed that radiography would not be a part of the testing regime contracted for by the parties. The judge disagreed. 

To hold the contractor to a higher standard in terms of the quality of work required when the client had expressly declined to contract for the radiographic testing necessary to be able to detect and assess compliance would be to re-write entirely the original bargain struck by the parties. Accordingly, the judge disagreed with the client that the welding defects were widespread. 

Standard not in works information


He went on to say it was illogical to consider something a defect for the purposes of the contract if the particular inspection method agreed was not fully effective for finding and assessing that flaw type. 
‘Defect is defined in the NEC3 contract terms as a part of the works not in accordance with the works information. Table 5 cannot, on any view, have formed part of the works information, specification or any other contract document if the parties agreed that radiographic testing would not be done.’
The case therefore provides a valuable reminder about the importance of making sure that you understand everything that is set out in the NEC3 works information or NEC4 scope. 

Importance of keeping evidence


By way of a post-script, the case also highlighted the importance of preserving (potential) evidence when disputes arise. The judgment noted that the welds which were said to be defective were originally cut out and retained by the client. However, at some stage, they were removed and scrapped. No explanation was provided for this. 

As the judge said, destruction of physical evidence, particularly when the question of the quality of the welds was such a contentious issue between the parties, should not have occurred. The destruction also did not assist the client. While non-destructive testing reports for some of the welds survived, these were far inferior to actual physical inspection of the welds by the experts instructed by the parties. 

Given that it was the client’s case that the quality of the welding by the contractor was below the necessary standard, the absence of the physical evidence obviously adversely affected the client’s position.
 
POSTED BY JEREMY GLOVER , FENWICK ELLIOTT LLP
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