Do what NEC4 ECC says or face the ‘enforcement clauses’

Key Points

NEC4 ECC clause 10.1 requires parties to ‘act as stated in this contract’ while clause 10.2 requires them to ‘act in a spirit of mutual trust and co-operation’.
Clause 10.1 is enforced throughout the contract while clause 10.2 is primarily achieved by taking and listening to each other.
This article sets out a table of NEC4 ECC ‘enforcement clauses’, each of which provides a remedy if a party has not done what the contract says.

Some people emphasise the collaboration encouraged by clause 10.2 of the NEC4 Engineering and Construction Contract (ECC), which requires the client, contractor, project manager and supervisor to, ‘act in a spirit of mutual trust and co-operation’. This is encouraged by various processes in the contract and a key part is talking and listening to each other.

Clause 10.1 requires the parties, project manager and supervisor to, ‘act as stated in this contract’. However, unlike acting collaboratively, this is enforced throughout the contract. This means if one party does not act as stated in the contract, there is a good chance the contract provides a direct remedy to the other party.

This article, which is an update from one on NEC3 ECC published in the Issue 79 (Patterson and Trebes, 2016), looks at each of the clauses and how they are enforced.

Clause 10.2 and talking to each other

While mutual trust and co-operation are essential to successful management of the contract, only two clauses explicitly require the project manager and contractor to talk to each other: clause 62.1 ‘after discussing’ the project manager may instruct alternative quotations for compensation events, and clause 20.4 in Options C, D, E and F on forecasts of defined cost, which is undertaken ‘in consultation’.

More subtle is the fourth bullet of clause 31.2 which requires the contractor to show on the programme ‘the order and timing of the work of the Client and Others as last agreed with them by the Contractor or, if not so agreed, as stated in the Scope’. There is no clause for this ‘agreement’, but implicitly it will require discussion.

However, anyone with experience of NEC4 ECC will tell you that talking and listening to each other, such as reviewing draft submissions so the project manager will be able to accept them, is the best way to act. Talking and listening to each other – for which we like to use the acronym ‘TALTEO’ – is an important and sensible part of achieving mutual trust and cooperation.

Clause 10.1 and the ‘enforcement clauses’

Clause 10.1 says, ‘The Parties, the Project Manager and the Supervisor shall act as stated in this contract.’ The key word is ‘shall’, which is implicit in every subsequent action stated in the contract in the present tense unless the word ‘may’ is used. Note too that acting as stated (clause 10.1) and acting in a spirit of mutual trust and cooperation (clause 10.2) are both required, it is not one or the other.

There are various mechanisms in the contract which directly encourage or incentivise the contractor and project manager to do what it says in the contract: the ‘shall’. As shown in Table 1, for many clauses which provide an obligation in NEC4 ECC, there is a corresponding ‘enforcement clause’ to encourage it to happen. These are important links in the contract and it is suggested that users highlight them on their own copy.

In using the enforcement clauses, the project manager and contractor are encouraged to be contractual. This does not mean they are being adversarial, but to ‘act as stated’ supports better management of the contract and is more likely to result in successful outcomes. The parties are just doing what it says in the contract as required of them by clause 10.1.

It can be seen from Table 1 that several of the enforcement clauses lead to a requirement for one party to pay the other. Such amounts are picked up in the amount due in clause 50.3, which is the price for work done to date, plus other amounts to be paid to the contractor, less amounts to be paid by or retained from the contractor.

Summary

Using the NEC4 ECC enforcement clauses set out in Table 1 is not being adversarial in any way – it is simply doing what it says in the contract. Project managers and contractors who are not doing so are not doing their job.

To avoid falling foul of the enforcement clauses, read the contract (RTC), talk and listen to each other (TALTEO) and then do what it says in the contract (DWISITC).

Table 1. The enforcement clauses in NEC4 ECC - the same principles apply in other NEC contracts

NEC4 ECC REFERENCE CLAUSE	OBLIGATION	NEC4 ECC ENFORCEMENT CLAUSE(S)	EXPLANATION
1. General
15.1	Contractor notifies an early warning.	61.5, 63.7, Options CDEF 11.2(26)	If the contractor has not given early warning of an event that subsequently becomes a compensation event, the project manager says so when instructing a quotation (clause 61.5). This is the ‘you should have told me’ clause. The compensation event is then assessed as if the contractor had given the early warning (clause 63.7). This is likely to result in a lower assessment of the compensation event. If the main option is for a cost-based contract (Option C, D, E or F), then any costs incurred because no early warning was given are also disallowed costs (clause 1.2(26/27)). If the project manager does not notify an early warning they are simply depriving the client of the chance for project manager and contractor to talk to each other to minimise the effect of the matter.
60.1(3)	Client provides things by the date shown on the accepted programme.	60.1(3)	Although acceptance of anything does not change the contractor’s obligations (clause 14.1), the project manager should beware of accepting a programme that shows obligations on the client that are not in the scope and have not been agreed (clause 31.2, fourth and seventh bullet). This is especially the case if there is doubt the client can meet the date.
60.1(5)	Client or others work within the times shown on the accepted programme, work within the conditions stated in the scope and carry out work on the site that is stated in the scope.	60.1(5)	Not doing these things is a compensation event. Note that ‘others’ here includes, for example, third parties and often utility companies.
13.3	Project manager or supervisor replies within the period stated in the contract.	60.1(6)	Not doing so is a compensation event.
60.1(8)	Project manager makes correct decisions.	60.1(8)	Changing a decision is a compensation event.
10.1	Client acts as stated in the contract.	60.1(18)	Not doing so is a breach of contract, which is a compensation event. This picks up any such breach for which there is not a more specific provision in the contract.
2. Contractor’s main responsibilities
24.1	Contractor to employ competent and reasonable people.	24.2	The project manager may, with reasons, instruct the removal of an employee.
25.2	Client and contractor provide services and other things as stated in the scope.	25.2, 60.1(3)	Any cost incurred by the client as a result of the contractor not providing the services and other things which it is to provide is assessed by the project manager and paid by the contractor.
26.2	Contractor to submit proposed subcontractors for acceptance by the project manager	91.2 (R13)	If it is a subcontract for substantial work, the client may terminate if the contractor has employed the subcontractor prior to project manager acceptance and not put right the default within 4 weeks of a notification.
27.4	Contractor to act in accordance with health and safety requirements in the scope.	91.3 (R15)	The project manager may stop the relevant part of the job (clause 34.1). This will be a compensation event (clause 60.1(4)) but will not lead to a change to prices or a delay to the completion date as the event was at the ‘fault’ of the contractor (clause 61.2). In an extreme case the client may terminate if the contractor has substantially broken a health or safety regulation and has not put right the default within 4 weeks of a notification.
3. Time
30.3	Contractor to meet the stated conditions by the key dates.	25.3	The client may require stated conditions to be met by key dates in the contract data part one. If the project manager decides the work does not meet a condition by the date stated, the additional cost either in carrying out work or by paying an additional amount to others in carrying out work on the same project, is assessed by the project manager and paid by the contractor.
30.1	Contractor to achieve completion by the completion date.	X7	The contractor must pay the delay damages in the contract data if option X7 has been included. There is no discretion for the project manager: if the contractor is late, the project manager includes the delay damages in the assessment of the amount due. This applies to the whole of the works and to sections if option X5 is included.
31.1	Contractor to submit a first programme within the period stated in the contract data (if one was not included at the contract data part two).	50.5	If the contractor has not submitted a first programme showing the information which the contract requires, the project manager retains a quarter of the price for work done to date. To apply the retention, the project manager must show that either there has been no submission of the first programme, or the programme is not acceptable because it does not show the information which the contract requires (clause 31.3, second bullet point). This sanction highlights the importance of getting a first programme in place, particularly for assessing compensation events and discussing the possible effects of early warnings.
32.2	Contractor to submit acceptable revised programmes at the routine period required by the contract data or within 2 weeks of being instructed to do so by the project manager.	64.1	The project manager assesses a compensation event if, when the contractor submits quotations for the compensation event, it has not submitted a programme which the contract requires it to submit. The project manager must make their own assessment of the programme for the remaining work (clause 64.2). If the contractor does not like the project manager’s assessment, its only option is dispute resolution.
33.1	Client to provide access.	60.1 (2)	It is a compensation event if the client does not allow the contractor access to and use of a part of the site by the later of its access date and the date shown on the accepted programme.
4. Quality management
20.1	Contractor to pass any test in the scope first time.	41.6	The project manager assesses the cost to the client of repeating a test or inspection. The contractor pays.
41.3	Supervisor not to cause unnecessary delay.	60.1(11)	Doing so is a compensation event.
44.1, 44.2	Contactor to correct defects within the defect correction period.	46.1, 46,2	If the contractor does not correct a defect with the defect correction period, the project manager assesses the cost of correcting the defect and the contractor pays. There is no need for the client to correct the defect.
41.2	Client to provide materials, facilities and samples for tests and inspections as per the scope.	60.1(16)	Not doing so is a compensation event.
X17.1	If a defect included in the defects certificate shows low performance with respect to a performance level stated in the contract data.	X17.1	The contractor pays the amount of low performance damages stated in the contract data.
5. Payment
50.2	The contractor submits an application for payment to the project manager before each assessment date.	50.4	If the contactor does not submit an application for payment by the assessment date, the amount due is not increased from that in the last assessment.
51.2	The client and contractor to make payments on time.	51.3, 51.4	Interest needs to be paid for late payment. This is most likely to apply to late payment by the client but applies equally to late payment by the contractor if an assessment shows that the contractor owes the client money.
Y2.5	If the contractor exercises its right under the Housing Grants, Construction and Regeneration Act 1996 to suspend performance due to non-payment.	Y2.5	This is a compensation event.
6. Compensation events
60.1(12)	The bidder has to take into account the site information when pricing the contract.	60.2	In judging the physical conditions for the purpose of assessing a compensation event [i.e. clause 60.1(12)] the contractor is assumed to have taken into account the site information, information obtainable from a visual inspection of the site and other information which an experienced contractor could reasonably be expected to have or to obtain. Note this is the only use of the site information in the contract.
61.3	Contactor to notify compensation events when they happen.	61.3	If the contractor does not notify within 8 weeks of becoming aware of the event, there is no change to the prices, the completion date or any key dates. This does not apply to compensation events that the project manager should have notified under clause 61.1.
61.4	Project manager to respond within 1 week to a contractor notification of an event.	61.4	The contractor may remind the project manager if they fail to respond with the week. This gives the project manager another 2 weeks to respond. Failure to respond within the further 2 week period means the project manager is deemed to have accepted that the event was a compensation event and instructed a quotation.
62.2	In a compensation event assessment, the contractor submits details of the assessment with each quotation. If the programme for remaining work is altered by the compensations event, the contractor includes the alterations to the accepted programme in the quotation. Note that is required whether or not the contractor is seeking a delay to the completion date.	64.1	The project manager assesses a compensation event if, when the contractor submits quotations for the compensation event, it has not submitted alterations to a programme which the contract requires it to submit. The project manager must make their own assessment of the programme for the remaining work (clause 64.2). If the contractor does not like the project manager’s assessment, its only option is dispute resolution.
62.3	Project manager to respond within 2 weeks to a quotation from the contractor.	62.6	The contractor may remind the project manager if they have not responded within the 2 week period. This gives the project manager another 2 weeks. Failure to respond within the further 2 week period means the project manager is deemed to have accepted the quotation.
62.3	Contractor to submit a quotation within 3 weeks unless a longer period agreed.	64.1	The project manager assesses a compensation event if the contractor has not submitted a quotation and details of its assessment within the time allowed. The project manager must make their own assessment of the programme for the remaining work (clause 64.2). If the contractor does not like the project manager’s assessment, its only option is dispute resolution.
63	Contractor to assess the compensation event correctly.	64.1	The project manager assesses a compensation event if the contractor has not assessed it correctly in a quotation and has not been instructed to submit a revised quotation. The project manager must make their own assessment of the programme (clause 64.2) for the remaining work. If the contractor does not like the project manager’s assessment, its only option is dispute resolution.
8. Liabilities and insurance
84.1	Contractor to provide the insurances required.	85.1	If the contractor has not provided the required insurances, the client may insure and the contractor pays.
86.1	Client to provide the insurances required.	86.3	If the client has not provided the required insurances, the contractor may insure and the client pays.
9. Termination
91	Various reasons for termination by the client or the contractor.	92, 93	The contract sets the procedures on termination (clause 92) and the amounts of payment on termination (clause 93).

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