Often disputes arising later in the project are rooted early in the process. Some subcontractors or even smaller main contractors may be inexperienced with collaborative contracts such as NEC Contracts, meaning they are not familiar with compensation events and early warning notifications, which can lead to disputes. Even being well-versed in NEC Contracts is no guarantee that misunderstandings will not arise, if a proper understanding of the objectives and project-specific details is not achieved.
Another early project issue that can have ramifications later is moving too quickly to the construction phase before the design is fully developed, meaning the understanding of the risks or challenges is also not fully developed.
Another common problem is the misuse of Z clauses. As standard contracts cannot cover every situation, they enable parties to agree additional conditions of contract for specific needs relating to the project and the terms of its delivery.
However, poorly drafted or excessive Z clauses create ambiguity and uncertainty, and may conflict with the main contract. This, in turn, can lead to disputes that can be difficult to resolve and will often impact project delivery.
Training for success
All parties need to be willing to abide by the ethos of collaborative contracts and work ‘in a spirit of mutual trust and cooperation’ to establish a strong foundation. Trying to be overly prescriptive with Z clauses to ‘protect yourself’ can be counter-productive and lead to increased disputes.
This extends to selecting partner organisations and applies both to the client choosing a main contractor or professional services provider, and a contractor awarding work to a subcontractor.
Another priority should be ensuring that everyone fully understands the contract and their respective roles in it. This can be achieved through investing in training with the supply chain.
Formal training, such as the courses offered by NEC, provide a strong basis of understanding and ensures that best practice approaches are followed. It may also be valuable to develop NEC Contracts ‘subject matter experts’ within the project team who provide expertise on the day-to-day operation of the contract, via e.g. workshops held throughout the project for people from across the whole project team.
Dispute avoidance specialists could be brought in at the pre-contract phase to review contracts and any Z clauses, and highlight any issues. This allows adjustments to be made before the contracts are implemented, avoiding potential disputes.
Finally, it is important to ensure that NEC mechanisms are used correctly from the start to minimise the risk of disputes.
For example, it is important for clients to encourage the supply chain to raise early warning notifications as often as necessary and create an environment where these are viewed positively.
Similarly, it is important for contractors to submit compensation event notifications promptly, especially on large projects.
When used as designed, NEC Contracts are powerful tools for minimising disputes between project partners. Adopting the correct approach from the very earliest stages and maintaining this throughout, can help project teams to avoid potential issues and deliver projects successfully.
To find out more about resolving disputes see the book NEC4: Resolving and Avoiding Disputes and the NEC Practice Note: NEC4 Engineering and Construction Contract (ECC) Conflict Avoidance Clauses.
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