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April 30, 2020

How to use NEC in a crisis? Lessons learnt from the past

How to use NEC in a crisis? Lessons learnt from the past

Introduction

A crisis or event of the magnitude of the Covid-19 is rarely ever able to be solved unilaterally by one party to a contract and neither will it be solved by understanding or protecting your commercial position alone. I was working on the Heathrow Express Rail Link as a commercial manager when on Friday 21st October 1994, we had a catastrophic tunnel collapse. This brief article highlights how the use of NEC Contracts helped in the most difficult of circumstances.

On the picture below you can just see my office falling into the collapsing tunnels. I have to say that this single project and event taught me more about contracts than anything else.

Barry-Office.jpg

This was the first major project in the UK to use as it was named then the New Engineering Contract 1st Edition.

What lessons can we leARn from such events?

The client BAA plc and its leadership team headed by David H Williams Group Construction Director (also first NEC Users' Group Chair) at that time took an enlightened view of the event which was of such a magnitude that it had the potential to severely disrupt or even close the operational airport down and it was clearly a potential health and safety risk.

The starting point was not to reach for the contract but firstly to deal with the immediate emergency and make the airport safe: the commercial considerations were at this point, secondary.

The Early Warning Process

This is where the early warning process came into its own. The first thing the parties did was to sit down and discuss the event and discuss ways in which to make the project safe in an early warning meeting (back where we started now with NEC4). Making it safe required holes to be drilled from the surface to the crown of the tunnels and then filing the unstable collapsing tunnel section with circa 20,000m3 of grade 80 concrete. I still remember receiving what seemed to be thousands of concrete tickets in Tesco carry bags.

The point being that by discussing the problem at the early warning meeting the parties found ways to deal with the immediate issues.

Of course, there were numerous meetings which focussed on the key objective of how to get the project delivered and to find a way forward.

In such complex situations you would be amazed at how many people within and outside the business have vested interests and need to be kept informed and involved.

The Contractual Position

The issues and liabilities raised by this event were multiple and complex and the thing that sticks in mind was the BAA lawyer Fiona Hammond advising that we could go down the contractual route but given the complexities of the issues and liabilities it might take us ten years to get a resolution, and in the meantime BAA plc may have a severely disrupted or closed airport.

This meant the parties negotiating a commercial deal. In the immediate short-term it meant setting aside arguments on liability and responsibility for the collapse itself to focusing on how to recover and complete the contract.

The situation may well have been helped by the fact that BAA plc had taken out Business Interruption Insurance as an additional insurance. This event was the single largest insurance claim in the civil engineering sector in the 20th century.

Single Commercial Team

The outcome of the discussions was to create a single commercial team in which the clients and contractors team worked “shoulder to shoulder, side by side” to recover and complete the contract. The project was successfully completed in 1998 – only a few weeks later than had been originally planned.

How NEC Helped

There is little doubt in my mind that the NEC contract helped to focus the parties on working together and co-operating to find a solution to a major issue.
 
In, particular, the emphasis in NEC on:

Behaviours
The obligation in 10.1, to “act as stated” and “in a spirit of mutual trust and co-operation” helped to create an environment of co-operation under difficult circumstances.

Communication
Clause 13 emphasises the need for good communication and the need to notify separately matters which could materially affect a contract e.g. notify early warnings, notify compensation events, etc

The parties are actively encouraged/incentivised by NEC contracts to communicate with each other and there are sanctions for failure to do so.

Early Warnings
This process with an event like Covid-19 is invaluable. Often problems cannot be solved by a single party. The opportunity to invite other stakeholders with vested interests is important and the requirement for the Project Manager to take action by giving instructions is essential.

Accepted Programme
Having a regularly updated programme helped to ensure that the parties could understand the full implications of the event and were able to consider the various options which were identified in the early warning meetings to be fully explored and understood.

Defined Cost (Actual Cost NEC1)
Having a clear set of guidance on cost was a really great help in agreeing and establishing a revised total of the Prices for the contract and for helping to assess compensation events – although we still had the odd debating point of course!

Compensation Events
Having a clearly defined process for the assessment of change was essential it helping to keep the project moving forward.

Insurances
Notify and inform your insurers immediately. If the event is covered by insurances, then you will need a dedicated team to collate and collect all of the information.

Other Considerations

People
Another immensely important aspect to the recovery was to have a team of people with the right spirit of co-operation and working together. So, having the right people is essential and those people need to be supported by good processes just like those included in NEC contract.

Create the right environment and team
Creating the right environment and team is key to the recovery of the project.

The continuing operation of the airport was far more important than the contract, therefore the resolution was not subjected to blame and claim. The cause of the collapse was found to be the failure to properly align and close the temporary concrete lining – the Contractor error – and not an inherent fault in the New Austrian Tunnelling Method (NATM).

Summary

At the time of the collapse some commentators thought it was due to this new form of contract whereas in reality the New Engineering Contract helped everyone to focus on good management practice and successfully recovery and complete the project.

The lessons learnt and how the NEC helped on the Heathrow Express Rail Link are just as relevant today with the COVID 19 emergency. Finding a “way forward” in these difficult times is key and having a form of contract which supports and encourages collaboration, discussion and finding solutions is essential.

After all it will not be of any comfort to be contractually correct but find that the contractors, subcontractors and suppliers, upon which the industry relies have been sent into administration because the risks associated with the actions taken have not been fully considered or discussed.

Written by Barry Trebes, Director, Trebes Consulting


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